Longtime business owners and independent contractors should be familiar with Form 1099-MISC. As a refresher, this documentation is used to report payments made to contractors by business entities. For the sake of this post, let’s say you’re completing Form 1099-MISC for the first time.
Here are some step-by-step instructions that will hopefully keep you from pulling your hair out:
Box 1 – Rents
Per the IRS, enter amounts of $600 or more for all types of rents, including the following:
Real estate rentals paid for office space unless these payments went to an agent or property manager
Machine rentals (i.e. renting a bulldozer to level your parking lot)
Pasture rentals, such as a farmer paying for the use of grazing land
Box 2 – Royalties
This is where you will enter gross royalty payments of $10 or more. As referenced from the aforementioned IRS documentation, “Report royalties from oil, gas, or other mineral properties before reduction for severance and other taxes that may have been withheld and paid.” Both oil/gas payments for a working interest and timber royalties made under a pay-as-cut contract should be reported elsewhere.
Box 2 should also be used to report payments from intangible property such as copyrights, patents, trade names, and trademarks. Report the gross royalties paid by a publisher directly to an agent, unless the agent is a corporation.
Box 3 – Other Income
The IRS needs to know if you were the recipient of prizes and/or awards during the year. First, note the fair market value of any merchandise won on game shows. You must also include amounts paid to a winner of sweepstakes not involving a wager.
Here are some other common items required to be reported in Box 3:
Payments outlined under Deceased employee’s wages
Payments outlined under Indian gaming profits, payments to tribal members
Payments made to individuals for participating in a medical research study or studies
Termination payments to former self-employed insurance salespeople (such payments are not subject to self-employment tax)
Compensatory damages for sickness or non-physical injuries such as employment discrimination or defamation
Box 4 – Federal Income Tax Withheld
This box revolves around backup withholding. Those who have not furnished their TINs are subject to withholding on payments required to be reported in several other boxes. Box 4 is also the place to enter any income tax withheld from payments to members of Indian tribes from the net revenues of class II or III gaming activities licensed by tries.
Box 5 – Fishing Boat Proceeds
Enter your share of proceeds from the sale of a catch to each crew member of fishing boats with fewer than 10 members. You must also report cash payments of up to $100 per trip that are paid solely for additional duties (such as cook, engineer, etc.). As you complete Box 5, do not report any wages reportable on your W-2.
Box 6 – Medical and Health Care Payments
Enter payments of $600 or more made in the course of your business to each provider of health care services. You should include payments made by medical insurers under health, accident, and sickness insurance programs. The IRS does not require you to report payments to pharmacies for prescription drugs.
Box 7 – Nonemployee Compensation
This box is where you will enter nonemployee compensation of $600 or more. The IRS requires you to report a payment as nonemployee compensation if the following four conditions are met:
You made the payment to someone who is not your employee.
You made the payment for services in your agency or organization.
You made the payment to an individual, partnership, or corporation.
You made payments to the payee of at least $600 during the year.
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