One of the most significant updates that taxpayers of 2020 received was the reintroduction of the 1099-NEC form. Whether you are a payee or taxpayer, knowing what 1099-NEC is essential for you. This becomes important, especially for businesses who hire freelancers, independent contractors, and self-employed people.
1099-NEC form is used by non-employees, meaning independent contractors and those businesses to who you made payment. Each year, non-employees receive a form, just like employees do. The form is received by January end. In the form, you will include information related to your income tax return.
The payers will hand over the 1099-NEC form to each non-employee if the total income for the whole year is over $600. However, if the non-employee’s income is less than $600 for the entire year, Form 1099-NEC will not be shared. But that doesn’t mean that you shouldn’t include the income amount you received from the company on the tax return.
In case a person uses a tax software program, he or she will be asked if they have any 1099 income. If you do, you can go ahead and include all the information on the form. If you are taking a tax preparer’s help, offer the form to the person and all the necessary documents.
Including 1099 income on the tax return
How you will report your 1099-MISC income on the income tax return will largely depend on the kind of business you owe. Whether you are a single-member LLC owner, or a sole proprietor, you will report 1099 income as Loss from Business or Schedule C-Profit. Once you complete Schedule C, you will be reporting all your income and expenses. Business expenses that you will report will be the fees that you have paid to professionals, business office expenses, and purchases of equipment and business supplies. You will have to reduce the net income of your business.
However, if you are in a partnership business, meaning you have a multiple-member corporation or LLC, in that case, your 1099 income has to be reported as part of your enterprise income tax return.
How to Fill Form 1099-NEC?
The payees or service providers will be required to share the 1099-NEC form. It will have the name of the person, their address, and other essential things required, such as taxpayer identification number. All of the information is mandatory to fill the form.
Every 1099-NEC form has to be filled by the taxpayer for the previous year, starting with the following one. Once the payer or the client has the W-9, the client will begin filling out the form. Two copies will be required, Copy A and B. Copy A will be sent out to the IRS, and Copy B will be sent out to the independent contractor. It is the payer who will fill out the form and not the payee.
The deadline for sending 1099-NEC from the payers to the independent contractor is 31st January. But for 2021, the deadline is 1st February, since 31st January is a Sunday.