You may ask why in the world I have a post about 1099s on my site. After all, I’m an author/editor, not an accountant. But trust me. If you’re a fellow writer, this information is pertinent. I invited my CPA, the illustrious Chris Morris, to tell us about this oft-overlooked aspect of hiring a freelance editor (or other contractors who support your writing business). Chris is a writer, too, so not only does he do the numbers thing, he totally gets the words thing, too. Read on and glean from his CPAish wisdom.
Everything you need to know about 1099s As the year-end approaches, this is the best time to start thinking about how to prepare for tax season. One aspect of taxes that far too many creative entrepreneurs forget about is issuing 1099s for contractors. This article will give you all the information you need to do it right and will even help you to improve your processes for the next tax season.
Are you sure I have to worry about 1099s? Actually no, I’m not sure. There are three scenarios where you won’t have to issue any 1099s:
- If you are not yet treating your creative endeavors as a business for tax purposes, then this is not a concern for you. So, anyone who is still treating their artistry as a hobby needn’t worry about the rest of this article.
- If you didn’t pay any contractors or subcontractors more than $600, then you won’t have any 1099s to issue this year.
- If all your payments were made through PayPal or similar payment processors (Stripe comes to mind), then you don’t have to issue any 1099s. The payment processors will issue on your behalf.
Who do I consider contractors or subcontractors? Essentially, contractors or subcontractors are anyone you paid for services in the normal course of your business who is not an employee. This could include web designers, book cover designers, editors, business coaches, and any number of other types of individuals or businesses.
I want to point out one key phrase above: in the normal course of business. You don’t have to issue 1099s for individuals or businesses that you paid for personal purposes. This means that you don’t need to send your pool maintenance man a 1099, unless you are calling this a business expense, which would be extremely unlikely.
How do I get the information I need to fill out the 1099? All the data you would need to complete each 1099 would be contained on a W-9 form. This is a document you send to each vendor that you would be issuing a 1099 to, available here. I would actually suggest that you get into the habit of sending a W-9 to each new vendor as part of an onboarding process. This will allow you to stay ahead of the game moving forward, instead of scrambling like a madperson to get all the information needed at the end of the year.
When are 1099s due, and to whom are they due? There are two deadlines to be aware of when it comes to 1099s:
- Contractors and subcontractors will need to receive their 1099s by January 31.
- Starting in 2016, the IRS must receive the 1099s by January 31 as well. This is important to note, because this deadline used to be the end of February.
How do I prepare my 1099s? There are any number of companies that prepare and sell paper Form 1099 packages. You can find them at Staples, Wal-Mart, or any similar store. Each company that sells these forms has their own software and their own process for completing the forms.
There are a couple challenges with this approach though. Sometimes the software isn’t updated or isn’t compatible with your computer. Also, you might run out of forms or have to pay for 25 when you need three. For this reason, I am a huge fan of a service called Track1099 (this is NOT an affiliate link–I just love the tool!). This company allows you to enter or import your 1099s into their cloud-based system and file them for around $2 per form. Plus, they take care of sending the forms to both your contractors and the IRS. I use this service personally for all my clients who hire me to complete their 1099s.
Don’t freak out and don’t forget This is the best advice I can give to creative entrepreneurs about 1099s. The process can be cumbersome, but it’s not overly complex at the end of the day. However, there are fines of up to $1.5 million for intentional failure to submit the 1099s to the IRS. So in summary, don’t go broke and complete your 1099s.
Chris Morris is the founder and managing partner of the creatively named accounting firm Chris Morris CPA LLC. He focuses his practice on serving the needs of creative entrepreneurs. He’s proud to count editors, magazine publishers, digital designers, publishing houses, photographers, and the local pool man among his clients. He also provides a full breadth of tax and accounting services to the creative entrepreneurial space. By night, he also writes about redefining normal and building hope in the face of chronic illnesses and special needs. His writing is founded on the belief that circumstances don’t prevent thriving but create opportunities for God to demonstrate his goodness.