A Basic Guide for 1099's
What is a 1099?
There are a few different kinds of 1099’s, but today I am specifically talking about 1099’s for independent contracted workers.* The form 1099 for contracted workers is called a Form 1099-MISC. Any contractor should receive a form 1099 from any client that they have worked for during the year. For example: if I was a consultant on interior decorations for a company that flips houses, I would need a form 1099 from them. I would also need a form 1099 from any other companies that hired me for consulting or home staging.
*If you are interested in learning more about different 1099’s, check out this blog post from TurboTax!
What’s the difference between a 1099-MISC and a W-2?
W-2’s are for an employee who was paid an hourly wage or a salary and had taxes withheld from each paycheck during the year.
A 1099-MISC is for a self-employed individual, or contractor, who was paid in full with no deductions. That does mean that they still need to pay taxes on their income.
When do you need a 1099-MISC from a client or company?:
- If you have an LLC-P.
- If you were paid a total of over $600 in a single payment or over multiple payments.
- If you also are not an employee with taxes already deducted from your checks.
When don’t you need a 1099-MISC from a client or company?:
- If you are an employee that is on payroll and has taxes withheld in each check.
- If you are a corporation, including LLC-S or LLC-C
- If you were paid under $600.
(Please know that you still need to report your income, even if you do not get a form 1099-MISC due to being paid under $600.)
It was fantastic to gain a deeper understanding of how the form 1099- MISC works, but my biggest takeaway from this month was learning how to talk with people regarding sensitive tax information. There is no question that confidentiality is vital in the realm of taxes. What does that mean for those of us who are handling confidential info? Here are some tips based on what I learned this month.
How to send your information?
During tax season, there are EIN’s and SSN’s everywhere, but these are important numbers to keep secure. Don’t send these kinds of numbers (yours or someone else) via e-mail, spoken in a public area, left open on a computer, etc. That is important because identity theft is a serious issue and the last thing anyone wants is to be a part of the chain that allowed that to happen to someone.
The best way to keep the data secure was to send a copy of the W-9 via your work e-mail account. In my opinion, this is still safer than just sending over an SSN in an e-mail, without any extra barrier of entry to reading the number.
How to ask people for personal information or W-9s?
Remember, anyone that is talking to you about their information is likely doing their best to keep it hush, which means you should provide that same security for them.
A huge part of that sense of security is being very clear with them. Who exactly do your work for? How is that related to them, what’s the connection? Why do you need their personal information? What, precisely, are you going to use it for? Is it something they should even care about? (AKA, are you just collecting info or are you sending them their needed tax documentation.)
How to speak when asking people for personal information or W-9s?
In addition to being clear in addressing all of these questions, you also must sound confident. This confidence in your words will help the persons you are speaking with know that you are confident in your ability to safely utilize their information for the correct purposes.
Most importantly, when someone questions you back, be prepared to do what you need to for them to feel comfortable. If that means brining in your manager to verify your position at the company, or just giving them your companies address or website, whatever it may be, you make sure that you are willing to work with them.
These are the things that help them build trust that you really do care about their security and safety of their info.
This was a really fun month, and I am so happy I understand this side of tax season more.
I hope you gain some knowledge from my portfolio post. Thanks for reading!
*This is a post of things I learned through a project I recently completed, but am not an accountant or tax expert. Anything that you are unsure of with your taxes should be taken to a professional to verify what the best steps are for your situation.