1099s MISC and K

Today TaxMama® hears from Stephanie who is getting asked these questions by her team of writers and websites. “Who should be sending out 1099s? And what do we do about those 1099-Ks?”

Dear Stephanie,

These are good questions.

First, who should be sending out 1099MISCs – and to whom?

Anyone whose business pays $600 or more to another person or business for a service should be issuing 1099MISCs. You must send them to the recipient by January 31^st –but you may wait until March 31^st to file them with the IRS, if you file electronically. (DO hold off until at least the end of February, so you can get corrected addresses, etc. before filing.)

Generally, you only send them to people who are not incorporated, except for attorneys and medical service providers. However, when someone is an LLC, it can get confusing. You can clear up the confusion by having each payee fill out a Form W-9 when you hire them or contract with them – before issuing the first payment. There is a box for LLCs – and a space to enter a C, S, or P for the way the LLC reports their taxes. If they enter P for partnership, issue them a 1099-MISC.

Note: If you pay someone (like all your affiliates) via PayPal or through their merchant account, do NOT issue the 1099MISC. They will get a 1099-K from their bank or payment system.

Now, what about those dreaded 1099-Ks? Unless you are credit card issuer, PayPal or other bank-like entity, you will not be issuing those. However, your business is apt to be receiving 1099-Ks if you are selling online. You will get the 1099-K if you accept credit cards or PayPal, Amazon Merchant, Google Merchant and other online payment services. The problem you will face is duplication. You might get both a 1099-K from your bank and a 1099-MISC from your client for the same dollars. The reconciliations will be complicated. But if you don’t handle the reporting properly, you will overpay your taxes.

TaxMama will be holding a webinar for all you business-owners on how to reconcile the mess of 1099s you receive this year. Stay tuned. We’ll probably do this in late February, before you file your business tax return.

And remember, you can find answers to all kinds of questions about 1099s, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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