 | Home |
| Business Plan |
| Deductions |
| EIN |
| Projected Growth |
| Forms |
| Ledgers |
| Independent Contractor |
| Sole Proprietorship |
| IRS Wish List |
| Recordkeeping |
| Tax Year |
| The 1099 |
| Links |
The 1099 -- What is it used for? |
The W-2 and 1099 are Different Beasts
When I was employed in an office I received a W-2 at the end of each tax year. The 1099 will also arrive at the end of the year. The difference is that you are not an employee of the sender.
W-2
The Form W-2 is used by employers to report wages, tips and other compensation paid to an employee. The form also reports the employee's income tax and Social Security taxes withheld and any advanced earned income credit payments. The Form W-2 is provided by the employer to the employee and the Social Security Administration.
1099
A Form 1099 is used to report payments made in the course of a trade or business to another person or business who is not an employee. The form is required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or services are paid. The form is provided by the payor to the IRS and the person or business that received the payment.
A Situation Requiring a 1099
I am starting a business with an Associate who lives thousands of miles away from me. In fact, I'm traveling to work with her. Since I need to earn a salary while starting our joint venture, my Associate and I decided me to look into the tax ramifications involved in awarding me a daily allowance. Who better to turn to than my own mother?
Mom's advice:
|
|
"Say she pays you $60.00 a day. That's non-employee
compensation to you and every bit of it is deductible to her and taxable to
you.
She and you both call that Commission (Paid and Earned). End of the year, she sends you a 1099 for the sum total of all the $60.00s. It's then your job to write that down with expenses. Call it Fees from Services rendered and it is your Income starting number on a Schedule C." |
|
If you turn around later on and pay her for FMV rental of her apartment, that's a totally separate event. Keep the two quite separate. You'll deduct a portion of the rent as an office in home. She'll declare all the rental income and write it down with interest expenses, taxes, insurance on the house, etc." |
|
