Freelance 1099 Tax Considerations

Here is basic 1099MISC and 1099K information that freelancers may find useful for your tax filing.

1099- MISC General Rule

General Rule : If a supplier or vendor is paid $600 or more in aggregate in a year for:

  • Rents (unless paid to a real estate agent)
  • Services (including expenses and materials)
  • Prizes or Awards

Then the payor business is generally required to report this to the IRS by 2/29 and give a copy to the payee by 01/31.

Who must file the 1099-MISC?

Many Businesses need to file 1099-MISC each year.

Note: the 1099 MISC is for payments made by a trade or business only; you do not need to do this for personal payments.

Schedule C 1099-MISC Questions

The 1040 Schedule C contains the following two questions:

  • Did you make any payments in 201X that would require you to file Form(s) 1099? (see instructions)
  • If “Yes,” did you or will you file all required Form(s) 1099s?

Essentially you are auditing yourself when you sign the tax return. Answering these questions incorrectly can lead to significant penalties.

Vendor Exceptions for Filing 1099-MISC

There are exceptions for the following vendor types:

  • Corporations such as Corp /P.C. /Inc.
  • Tax-exempt Organizations.
  • Government entities.

That leaves all the rest as required, such as:

  • LLCs
  • LLPs
  • All Attorneys
  • Co.
  • LTD.
  • Sole proprietors

1099-MISC Payment Type Exemptions

There are exceptions for the following payment types:

  • Payments made with a credit card or other payments covered by 1099K are exempt.

That leaves all the rest as required, such as:

  • Checks
  • Cash
  • Wire Transfer
  • Bartering of Services

1099-MISC Penalties
Congress has increased the penalties for non-compliance.

  • Failure to File Correct Information Returns (with the IRS) by the Due Date (Section 6721)
    • $30 to $100 for each late or missed 1099 to IRS.
  • Failure to Furnish Correct Payee Statement (with the IRS) by the Due Date (Section 6722)
    • $30 to $100 for each late or missed 1099 to vendor.
    • At least $250 penalty for intentional disregard of payment statement requirements.

1099-MISC To Do List

  • Go through your financial records and make a list as to which vendors are to be given 1099 MISC..
  • Send vendor a current W-9 to fill out. You must have the vendor’s name, address, and tax ID. This information must be current. Copying information from an invoice may no longer be correct or sufficient backup for the IRS.
  • If you do not have the correct taxpayer identification number, you are supposed to withhold 28% of the payment for backup withholding.

1099K – Merchant Card and Third Party Network Payments

If you accept credit cards or payments online, you will receive a 1099K from each processor:

  • Visa/MasterCard
  • Amex
  • Discover
  • Paypal
  • Google

These should be provided to you by 01/31. All you need to do is save these and give them to your tax preparer in order to file your taxes.