With just about every tax/money question that you may have, the answer is: it’s complicated.
To make things easier, I’m going to share the system that I use to determine who needs a 1099:
Step 1
Go through your books and make a list of all of the people that you paid more than $600 in 2020. Do not include the money you paid through payroll, as taxes were already withheld.
Step 2
Determine the nature of what you were paying for. In general, 1099s are only needed for services, not products. (Some examples of 1099 contractors are people you pay for rent, attorney services, and bookkeeping services.)
Step 3
Determine the business structure of the people you paid services to. If they are taxed as a corporation, they don’t need a 1099. In general, the people who need a 1099 are sole proprietor’s or own a limited liability company that is being taxed as a sole proprietor. You may have to call these people to make sure.
Step 4
Determine HOW you paid each of these payments. If it was by credit card, those are exempt from needing a 1099. If it was Cash or Check, they still need one.
Step 5
If you haven’t already, ask these people to fill out a W9 form for you. This will give you all of the information you need to file your 1099 for them.
Still have questions? The IRS’s website is the BEST place to find them. This link will bring you directly to the page that discusses 1099s and who needs one.
Would you like for Profit Meadow Bookkeeping to help you determine who needs a 1099, or even file them for you?