Companies contract 1099 vendors to complete services for them. It is typically for work they want to outsource to professionals in that specific field. For example, a company may outsource its books to a company that specializes in bookkeeping. Another example is when a company hires a freelancer to create a logo and redesign their website for them. They hire these people because they don’t have the expertise in-house.
Who qualifies as a 1099 vendor and what does that mean for your business? Keep reading for all the information on 1099 vendors.
Payments and Taxes
1099 vendors are not employees of a business. Do not include them in your company’s payroll. They send companies an invoice after performing the work for them. Since these vendors are not on your company’s payroll, do not withhold taxes from their payments.
1099 vendors withhold taxes from their own income. Businesses need to accurately report their payments to the government. This is a way of verifying the income the vendor received and if they withheld the proper number taxes.
When working with vendors, it is important to keep your accounts payable and receivable organized. Ensure that you don’t miss any payments to the contractors and possibly incur a late fee. As a vendor, make sure the businesses that hire you are paying you accurately and on time. Keep your taxes organized in a spreadsheet or with online accounting software.
1099 Forms vs. W-2
The main difference between these two is that a 1099 form is for a contractor, while a W2 is for an employee.
Salaried and hourly employees of a business receive W2’s during tax season. This summarizes their earnings and taxes paid throughout the year. Employers pay the government the employee’s taxes.
You know that someone is an employee when your business controls when and how work will be done. Businesses provide equipment and materials that employees use to work. Another sign that they are an employee that receives a W-2 form is that your business provides benefits to the worker and pays business expenses of the worker.
If you are contracted/hired to do specific jobs and are paid for over $600 of work, you will receive 1099 forms from each company during tax season. Independent contractors determine their payroll taxes, and then they have to pay the sum every quarter.
You know that someone is an independent contractor if they service many different customers or clients who pay them directly for their services. This worker controls when and how the work is performed.
How Many 1099v Forms are There?
There are many types of 1099 forms. These forms depend on the type of work done. Vendors used to receive 1099 MISC forms from clients when completing over $600 of work in a year. As of 2020, this form is now used to report miscellaneous income such as rent or payments to an attorney.
The common form that 1099 vendors will now receive is the 1099-NEC. It is the same thing as what the 1099-MISC used to be.
Tax Deductions as a 1099 V
If you are an independent contractor, you can deduct work-related expenses on your taxes. Some of the most common deductions include home office deduction, internet, travel, and business meals.
1099 Vendor Financials
If you work with vendors, our team will help you with bookkeeping and financial planning. If you are a vendor, we can help you maintain great accounts receivable and ensure that tax season runs smoothly for you.
Contact us today to work with our team at PL Consulting!