The 1099 Tax Form and Four Reasons to Outsource the Reporting of This Form
The standard W-2 Form that most taxpayers are familiar with reports income earned through wages, commissions and salary. The 1099 Form is a type of IRS tax form that is used to report certain other types of income outside of the income found on all W-2 received by a taxpayer during the applicable tax year.
The 1099 Form requirements for filing cover various types of income as well as income for independent contractors. There are sometimes instances in which a certain dollar threshold determines whether a 1099 form is required.
This is a form that some taxpayers may not have much familiarity with through past experience in completing tax returns and supporting tax forms. Given the technicalities, complex rules, process, and the nuisances, it is worth considering reporting this form through the use of outsourcing services.
This article discusses four reasons to get the Form 1099 reporting outsourced.
1. Forms of Income Required to be Reported on the 1099 Form add Nuisances that Many May Not Understand
This is a form that covers many types of income that some taxpayers may be unfamiliar with receiving or may only receive such types of income in some tax years. Given the range of income that may be covered on this form, it is important to realize the complexity included in determining what triggers the requirement to report certain types of income on the 1099 Form. This can change each year as the tax laws frequently change. It can also be based on amount. Given this array of different types of income and dollar thresholds, obtaining an expert can save time and ensure that the income is correctly reported on the correct IRS tax form.
2. If You are a Freelancer or Independent Contractor or a Business that Hires Either, It is Important to Understand When the 1099 Form is Required
Typically a freelancer or independent contractor may be working with many businesses and in general, have other types of tax considerations that differ from the standard employment relationship that reports income received on the W-2. This can quickly become overwhelming. It may also be unclear what types of services require the reporting of income earned via the 1099 Form. This can cause a lot of unnecessary time spent and potential inaccuracies.
This goes for businesses that hire freelancers or independent contractors. It is important to understand who counts as a freelancer or independent contractor. It is also important to understand what types of income needs to be reported. Additionally, currently, businesses only need to file this form when they pay $600 in qualifying income to a freelancer or independent contractor. The complexity of knowing what counts as reportable income and maintaining accurate records can be daunting for a lot of small businesses.
3. It is Important to Get this Complex Form Correct to Avoid Fees and Improper Reporting of Income
For taxpayers, it is important that they correctly report the income received and that they do so on the correct form. This saves time and potential penalties.
For businesses, there are fees if they fail to deliver a Form 1099 to any freelancer or independent contractor that was hired by the business during that tax year and meets the requirements for this form by the due dates set by the IRS. Additionally, it can cause issues for these freelancers and independent contractors if it is delivered late or filled out incorrectly.
4. A 1099 Processing Service Can Streamline an Otherwise Complicated Process
Given the complexities involved with this important form, outsourcing the reporting of the 1099 can save time and money. This form is not the easiest tax form to understand. Tax forms and the accompanying rules and guidelines are already very complex. By using a processing service, businesses and individual taxpayers can both rest assured that it is filed timely and accurately.