There is nothing more certain than death and taxes, whether we like it or not. Taxation is a way for the government to fund their operations, and some of you may disagree but that’s a discussion for a later day. When reporting taxes there are a plethora of different forms that pertain to anything and everything. However, one of the more common forms you will likely see during your lifetime is the 1099. Within the 1099 reporting category you will likely come across the 1099-M or 1099 Miscellaneous. This article will detail the variety of impacts and reasons for a 1099-M tax reporting.
What is a 1099-M?
A 1099-M is typically used for individuals that are contracted to do work for a specific amount of time. The reason this tax form is used is that 1099-M’s typically do not withhold taxes and when it comes time to file your taxes, you are responsible for the tax bill. You can also view the 1099-M as a replacement for your W-2 if you are a professional freelancer.
One of the benefits for the person contracting out work is if the individual does not earn more that $600, they are not required to generate a 1099-M. However, if the individual were on company payroll they would still be required to generate a W-2 no matter how minimal the earnings.
Preparation of the 1099-M
Similar to a W-2, you should look to receive the 1099-M through the individual that contracted you. You should receive this by the end of February, as there are tax deadlines companies have to abide by. You’ll then properly report these earnings as your tax form as directed by your tax professional. Again, if you earned less than $600 you likely won’t be seeing a tax form and will need to claim those earnings separately. Also, you will likely have interactions with the Schedule C portion of your tax filing.
Advantages of a 1099-M
While taxes are not advantageous to anyone, there are some better benefits to being a 1099-M employee over a W-2, and the first is you can claim deductions. Should you need to use certain equipment you can deduct more from your taxes. Also, since a 1099-M individual is not subject to taxes they should make payments throughout the year to ensure they minimize or eliminate their tax bill when tax season arrives.
When working as a freelancer you may find you receive many 1099-M’s from various clients. It’s important to keep good documentation of your earnings and tax forms because it can be difficult to locate everything at the end of the year. Keep in mind that you’ll need to set aside money for taxes. A 1099-M is also advantageous for the employer because you are not on their payroll directly, meaning they do not have to provide certain benefits if you were an employee. Each tax status has their unique differences and everyone’s case is slightly different. Tax time to understand what’s right for you and you’ll have a better understanding going forward.