HOW TO: 1099
If you pay someone more than $600 while doing business, you may be required to issue them a form 1099. Read on to learn more….
This information is gleaned from Artemis Tax (a fabulous Accounting Firm in Portland, OR)
1. Does this apply to me?
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If you’re self-employed (*all business structures), then this applies to you. It also may apply to you if you have rentals (including short-term rentals, like Airbnb).
It does NOT apply to you if you pay someone for a personal or household task.
Examples:
- Paying someone to wash the windows in your home? NO
- Paying someone to wash the windows for your retail storefront? YES
- Paying someone to do improvements on your rental property? YES
- Paying your personal rent on your home? NO
- Paying rent for your commercial space? YES
2. Does it matter who I’m paying or what I’m paying them for?
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Yes!
- If you are paying a corporation, then you do not need to issue them a 1099 (remember that an LLC is NOT necessarily a corporation, you will need the LLC to complete a W-9 Form
- If you are paying your rent to a property management company (instead of the building owner), then you may not need to issue a 1099.
- A new requirement for issuing a Form 1099-MISC is if your client made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
3. What if I use a 3rd party payment processor to make payments (ie venmo, square, PayPal, etc)?
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UPDATE!!!
For taxpayers who may have already received a 1099-K as a result of the statutory changes, please check out the website above for guidance.
The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect for the 2023 tax year.
The original change to the 1099-K reporting was supposed to take effect as of January 1st, 2023. Assuming that the change goes into effect as of January 1st, 2024, here's what you need to know: If you use third party payment processors (i.e. PayPal, Venmo, Square, Stripe, etc.) a 1099-K will be issued and filed with the IRS by the third party processor if a recipient is paid $5000 or more during the year for goods and services, with no minimum number of transactions requirement.
- Example: Assume that Jane bills her client $7500 in 2023 and the client pays her by PayPal. The client DOES NOT FILE Form 1099-NEC to report the payment. Instead, PayPal will file Form 1099-K reporting the $7500 to the IRS because it exceeds the $5000 threshold.
- The 1099K is only filed for transactions related to the purchase or sale of goods and/or services. This may mean the sale of a personal item like a vehicle, art, etc., but it doesn't include reimbursing a friend for a meal or paying your portion of rent to a housemate.
- Also, expect PayPal & others to ask you for your taxpayer identification number (TIN) (your Social Security number or Employer Identification Number).
> What does this mean to me?
- If you are using third party processors to send or receive money for your business, then make sure that the TPSO has your Tax Payer Identification Number (this could be a Social Security Number, Employer Identification Number or ITIN).
- If you are paying people for NON-business transactions then make sure to select “Friends + Family” or use a personal account.
- If you are paying someone for goods and services then select “Goods + Services” and set up a business account with PayPal, Venmo, Square, or Stripe etc..
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4. What do I need to get from the person I’m paying?
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You should get a W-9 Form Form from anyone that you pay in your trade or business. This form will ask the recipient to report if they are a corporation (in which case you’re off the hook!), their tax ID number (usually their SSN or EIN), and their business name/address, all of which you will use to prepare and issue the 1099.
We HIGHLY recommend getting this form BEFORE you cut the first check. That way you have it on file and you don’t need to worry about chasing them down under a short deadline.
5. So when are they due?
And how do I do it, anyway?
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- Forms 1099 are due to the recipients by January 31st each year. 1099 forms that report amounts paid to subcontractors or “Non-Employee Compensation” are due to the IRS and Oregon by January 31st. All 1099 forms you are filing (Except for 1099-INT for interest paid on a personal loan or note payable) will need to be filed with the IRS and also filed on the Oregon I-Wire System.
- E-filing is the easiest method for filing 1099, and there are many options for doing this. We have used efile4biz.com , which will both file electronically and deliver to the recipient. We've also heard great things about tax1099.com . Neither of these options file with Oregon, so you will need to do this separately by January 31st using iWire.
- If you don’t have that many 1099’s to issue, you can prepare paper copies on your own. Order free forms from the IRS (give yourself at least 14 business days for the IRS forms to arrive). Most office supply stores sell the 1099 forms.
If you are looking to have 1099s prepared for you:
Shift is outsourcing 1099 prep to Gemini Accounting LLC. You can contact them here for details.
1099 Prep - Info required for Gemini Accounting LLC is listed below:
Completed W-9 forms
Itemized list of how much you paid each independent contractor or landlord (please specify if the payments were made for services, rents or royalties)
Payment Method - In light of 1099 rules changing, it’s helpful to know “how” you paid folks, i.e. check, cash, credit card, venmo, etc.
Info about your business:
Legal Company name or Sole Prop Name registered for the business
Business Entity type
Address for the business
Telephone
Contact person's name for the company
Your Current Tax ID number (EIN or SSN)