What Issues Should I Consider As A Business Owner Or 1099 Worker?

[Checklists and Flow Charts] - What to know about 1099 work | Issues To Consider As A Business Owner | The Retirement Planning Group

Running your own business (including 1099 work) introduces different elements that aren’t always easy to factor into your personal financial plan. Our 1099 rules for business owners’ checklist shares some key issues a business owner (or 1099 worker) should consider when making financial planning decisions. Download the checklist towards the bottom and read more below.

1099 Rules for Business Owners

For any business owner using a 1099 either to pay for workers or for their own income, there are key long-term issues and tax issues to be aware of for planning. As a business owner, you may need to create 1099 forms at the end of the year for any independent contractors or prizes you awarded to customers. This may also be necessary for any rent you paid, but check with your accountant or tax professional on your requirements.

One of the general 1099 rules for business owners is if you paid or received more than $600 from someone in a calendar year, you will need to send or receive a 1099. This is not for just one payment but is the sum total of all payments. For example, if you paid a content writer $200 in the spring, $300 in the summer and $250 in the fall for a total of $750 you need to send them a 1099-NEC form (see 1099-NEC further down).

What are the key types of 1099s?

  • 1099-MISC – For anyone who received more than $600 in payment such as a landlord or service provider (see more below on the 1099-NEC). This form should be used for truly miscellaneous 1099 activities like rent, prizes, awards, services. If the relationship is more of an independent contractor, use form 1099-NEC
  • 1099-NEC – This form is similar to the 1099-MISC but is for independent contractor type relationships. The NEC stands for “Non-Employee Contribution”.  It too is for more than $600 in payments during the calendar year to an individual or business. For access to this form and instructions see the IRS 1099-NEC page.
  • 1099-INT– This 1099 is for interest paid. You will commonly get this from a bank or investment firm to show any interest you paid so you can file appropriate taxes.

What To Know About 1099 Work For Individuals

As gig work becomes more popular, the need for 1099 forms does too. As an individual contributor, if you are paid more than $600 in a calendar year your client will owe you a 1099 form of some kind. Be sure to get that from them before January 31 of the following year, which is when they are due form your client or employer relationship.

Shifting to gig work can be difficult at tax time. Knowing the 1099 rules for LLC owners, which many individual workers operate under, is a lot. You will not receive a 1040 Form for your work with a business or client, but instead receive a 1099-NEC which you use to report your income. Your 1099 forms are crucial for tax time as they are your reporting for tax purposes. Verify and validate the numbers you receive to avoid any tax surprises.

As a 1099 worker, you will also need to pay quarterly tax estimates if you are not already doing so. This will avoid tax penalties. For your first year of 1099 work this isn’t an issue, but if you have filed 1099 income before, you want to check with your tax advisor on setting up and paying your quarterly tax estimates for the following year.

Tax Rules For 1099 Business Owners & Individuals

Side hustles and gig work are popular choices now for many individuals. Do not let this amazing opportunity be spoiled by the burden of tax knowledge. We recommend any business owner have a top financial and tax advisor to support. Our team supports business owners and 1099 workers to make smart tax decisions, understand the financial changes during the calendar year, prepare their quarterly tax estimates and payments and more. Schedule your free 10-minute consultation today with one of our advisors!