Taxation 101 What You Need to Know about 1099 Tax Returns

Each year, as you begin to work with both financial institutions and investment brokerages, you will receive informational tax statements for all of your business transactions. These are reports about the income you received during the previous year, including loans, unemployment income, and government payments. And 1099 tax returns are the most common.

This form will show you the income you received during the previous year. Although the government requires this information and business organizations are obliged to provide it, it only fits that you know where this money comes from. You should not feel that this is in any way an attempt to pry into your personal life. As a business owner, you are expected to keep a clear record of who you did business with and how this worked out for you.

You may not realize it, but there is a vast difference between a 1099-MISC form and a 1099-INT form. Most people believe the 1099-MISC form is for small businesses, but this is not the case. If you are an employee and receive any income from the company you work for, you will receive a 1099-MISC in the mail. The 1099-MISC defines the income you received in the previous year and the individual figures. 

If this information makes you dizzy, you should ask for professional help from an accounting firm specializing in business taxes. Before you book an appointment, though, you should finish reading this article. 

1099-MISC

1099-MISC is an Internal Revenue Service (IRS) form used to report miscellaneous income. Many taxpayers are familiar with this version. The IRS uses 1099-MISC to report any income that was not reported elsewhere. Income from freelance work or contract labor performed for other businesses must be reported on this form. 

Private individuals do not need to submit the form. For example, if you run a carpet cleaning business, a homeowner customer does not need to report how much they paid you on Form 1099-MISC. You still must pay taxes on the income, however. 

You should not receive this form if you are a C corporation or S corporation; instead, you should receive a K-1 statement. If an LLC is involved in the transaction, you should still receive Form 1099-MISC.

It is essential to file Form 1099-MISC correctly and on time. If you fail to do so, you may be penalized by the IRS.

1099-I

You can find this statement from banks, brokerages, and other institutions that paid you interest over $10 for the tax year.  Keep this statement because it is proof of interest income. 

You receive this statement from banks, brokerages, and other institutions that paid you interest over $600 for the tax year. Keep this statement because it is proof of interest income. 

1099-K

This report shows the total amount of money you have made from your bank cards.

Conclusion

The IRS also recommends that you make a reasonable effort to obtain the taxpayer identification number of the person or company or to document the payment under section 6050W. You can ask a business tax specialist how to go about this.

At Tottax, we specialize in dealing with business taxes. We offer tax preparation, tax filing, and tax planning for all types of businesses. Schedule your free initial consultation now!