A 1099 NEC/MISC forms are used to report non-employment income to the (IRS). Businesses are typically required to issue 1099 forms taxpayers (Individuals and LLCs) other than a corporation who has received at least $600 or more in non-employment income during the tax year. 

To be able to issue a 1099 NEC/MISC you will need to get from W-9 from the individuals or LLC you are issuing the payment to. This from W-9 will provide you with their information such as Name, SSN and address. Best practice make sure you gather their W-9 before issuing the payment.

The IRS matches nearly all 1099s and W-2 forms, the wage-report forms received from an employer, against taxpayers' Form 1040 tax returns or other tax forms. The IRS may notify you that you owe more money if they don't match.

Employers might be responsible for the unpaid taxes plus penalties if they failed to report the 1099 NEC/MISC when required.

Key Takeaways

• Form 1099 NEC/MISC are used to report certain types of non-employment income to the Internal Revenue Service.

• Non-employment income for freelance and independent contract work must be reported on Form 1099–NEC.

• The deadline to mail 1099s to taxpayers is usually Jan. 31 of the year following the tax year.

• You're still responsible for paying any taxes owed on income earned during the tax year if a 1099 form isn't received.

• Ask the payer to send and submit an amended form if you receive an incorrect 1099 that they've already sent to the IRS. Yes, The IRS Gets Your 1099s too. Any Form 1099 that's sent to you is sent to the IRS.

• Self-employed taxpayers who earned less than $600 might not receive a 1099–NEC but they must still report all income when filing their tax returns.

What's the Difference Between a 1099 and a W-2?

A 1099 form shows non-employment income such as income earned by freelancers and independent contractors. Form W-2 shows the annual wages or employment income that a taxpayer earned from an employer during the tax year. A W-2 shows the taxes withheld by the employer from the employee's salary throughout the year, unlike a 1099.

The Bottom Line

A variety of 1099 forms exist because there are many types of income, including interest income, local tax refunds, and retirement account payouts. Taxpayers must report all their income when they file their tax returns regardless of whether they receive their 1099s. They don't have to send their 1099 forms to the IRS when filing but they should report any errors that appear on their 1099s.

It's essential to consult a tax professional if you own a business and you're unsure about issuing 1099s.

Sole proprietorship
The owner and the business are not separate, and the owner is personally responsible for the business's debts and legal obligations. 

Limited liability company (LLC)
A flexible structure that combines aspects of a corporation and a partnership. LLC owners, known as members, are not personally liable for the company's debts and actions. 

Corporation
A legal entity that is separate from its owners, but has most of the same rights and responsibilities as an individual. The corporation is taxed and legally liable for its actions. 

S corporation
A tax designation for an LLC or corporation that is taxed as a "pass-through" entity. S corporations can have up to 100 shareholders, who must be individuals or certain other types of entities. 

C corporation
A business structure where the members and the business are separate legal entities. C corporations offer owners stronger liability protection than LLCs or public limited companies (PLCs). 

General partnership
A structure that allows you to work with partners to pool resources and knowledge. Each partner is personally responsible for the business's debts and legal obligations. 

Limited liability partnership (LLP)
Similar to a general partnership, but with limited liability like a limited company. LLPs are often used by professional services like legal and accounting firms. 

When choosing a business structure, you can consider factors like legal liability, taxes, cost, flexibility, and your business's future needs.

Here is a list of most common tax-deductible business expenses:

• Advertising and promotion
• Business meals
• Business Insurance
• Business interest and bank fees
• Business use of your car
• Contract Labor
• Depreciation
• Continuing Education
• Home office
• Interest
• Legal and professional fees
• Moving expenses
• Rent expense
• Salaries and benefits
• Payroll Taxes
• Telephone and internet expenses
• Dues & Subscriptions
• Travel expenses
• Licenses, Permits & Fees
• Repair & Maintenance
• Utilities
• Much more...

Mixing personal and business expenses can lead to several issues, including:

Piercing the corporate veil
This is when a court ignores the limited liability status of a corporation and holds the owners or officers personally liable for the company's debts. This can happen if a court finds that the owner or officers commingled personal and business assets, or if they paid personal expenses from the business account. 

Legal liability
If a business runs into legal trouble, mixing personal and business finances can make the owner personally liable for the business' debts. 

IRS penalties
If the IRS discovers that personal expenses were paid from a business account, the owner may face late payment and filing penalties. 

Extra work for accountants
Mixing business and personal expenses can lead to more work for accountants, which means higher fees. 

To avoid these issues, business owners should keep separate personal and business accounts and credit cards. This can help ensure that business expenses are accurately recorded, and that the business' cash flow and budgeting are more accurate.

Hiring a professional accountant can help your business save time and money, stay compliant with tax laws, and reduce risk. Being experts in accounting, tax, and financial planning, they can provide your business with valuable advice and services. They can also support you if the IRS has questions or if you’re about to be audited.

If your budget allows, it's always best to hire a professional. They’ll help your business stay in compliance so that you can focus on growing your business and using your financial reports to make strategic decisions. 

While it depends on the business size and number of bank accounts we most commonly recommend doing your bookkeeping monthly.

This keeps the number of transactions down and helps the client easily remember items, transactions and have receipts handy. 

What happens when you do your bookkeeping quarterly?
Some clients even go as far as to do their bookkeeping quarterly, but here I see mistakes. The volume is overwhelming; clients may become frustrated while looking for answers to our questions and look for shortcuts or make expensive guesses and mistakes.

Hence, We often recommend doing your bookkeeping monthly.

IRS audits are usually triggered by:

1. Unusual income or expense items
2. Misreporting of income and expenses
3. Deductions that are disproportionate to your income
4. Repeated claims of business losses year on year

Now, while there’s no guaranteed way to avoid an audit, there are certain precautions you can take to ensure your business doesn’t raise any red flags.

Ways Businesses Can Avoid a Tax Audit

1. Be transparent about reported expenses. Categorize them.
2. Provide all details for every expense reported.
3. Always file your taxes on time. This will create a history of compliance.
4. Avoid amending your returns unless necessary. (Check your return before signing)
5. Use a Schedule-C form to report earnings and losses. 
6. Do not leave empty fields on your tax returns. Fill out every answer.
7. Always sign your tax return.

Each year, the IRS changes its audit focus based on areas of concern they noticed from prior years. 

We always recommend that taxpayers focus on taking every deduction to which they are entitled, keeping good records, and not worrying about the risk of audit. If you have good records and have stayed within the law, then you have nothing to worry about.

Audits today are mostly by mail, so you will receive a letter in the mail asking for more basic accounting information. No one is coming to drag you out during the night or call you and demand immediate payment or pull cash from your bank account. None of these happen without you receiving many, many notices. So don't avoid IRS mailings. Most of the time, the issues are easily resolved with a letter.