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Why are 1099 forms important?

To avoid legal problems, and to avoid potential fines and auditing, it is crucial to submit 1099 information returns.  1099 forms are not submitted to the IRS as often as they should be, because many business owners and trade professionals are unaware that they need to submit one, or don’t know how to prepare one.

If you’re a new business owner, you might not be aware that you need to submit 1099 forms for contractors or professionals that you hire and paid $600 or more to. This includes payments to accountants, attorneys, consultants, freelancers, and other professionals. Several other payments require 1099 form submissions, and you can check the IRS’s website for more information on what types of payments need to be reported with a 1099 or other information return.

The penalties for not reporting these payments to the IRS on 1099 forms can be substantial and stiff, so it is best to make sure that all payments that classify as 1099 income are recorded on a 1099 form and sent to both the IRS and the payee by the deadline.

If you are a new freelancer or contractor, you might receive a 1099 form in the mail around the end January. If you’ve never seen a 1099 form you might be surprised that your client would report the income you received to the IRS. Many new freelancers or moonlighters are unaware that they must report this type of income. The 1099 form was sent because you were paid more than $600 by your client.

The IRS requires that all of your gross income is reported, including payments received while freelancing and moonlighting. Even if the payment to you was less than $600, it is still required to be documented and included on your tax return. It is a potentially devastating mistake to not report 1099 income on your taxes, because the IRS can easily note the discrepancy between the 1099 income your clients reported to the IRS and the income you claimed on your taxes.

So, when it comes to reporting 1099 income, it is best to be safe rather than sorry. Avoid the stiff fines and extra money and time spent being audited by being vigilant and sending all necessary information returns on time. If you are worried about the difficulty of preparing these forms, to make the process simpler you can use 1099 software to help you prepare your 1099 information returns.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

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