Form 1099-MISC, Miscellaneous Income, is issued to a person if any of the following situations occur, when a trade or business or some other qualified organization pays:
• If at least $10 in royalties or broker payments are paid to a person
• At least $600 in: rents; services performed by someone who is not your employee; prizes and awards; other income payments; medical and health care payments; crop insurance proceeds; cash paid from a notional principal contract to an individual, partnership, or estate; payments to an attorney among others, are paid to a person.
• To report that direct sales of at least $5,000 of consumer products were made to a buyer for resale anywhere other than a permanent retail establishment.
What Would You Do If You Received A Form 1099-Misc?:
If any of the above circumstances applied to you, and you happened to receive a Form 1099-MISC, you would first look at what box of the form, the amount is reported in. For example, items in, boxes 1 & 2 would most of the times go on the Schedule E; box 3 on line 21; box 7 on a Schedule C; and so on. Instructions in greater detail are here.
Items in Box 7, Non-Employee Compensation:
Usually, you would be issued a Form 1099-MISC with amounts in Box 7 if you were an independent contractor and were not on an organization’s payroll. These numbers would usually go on a Schedule C, you would be able to deduct costs related to obtaining this income. The expenses to be deducted need to be backed up by receipts and please note that this is a highly audited area by the Internal Revenue Service, hence due diligence has to be maintained at all times with record-keeping.
Change in Tax Liability Due to Form 1099-MISC:
Most times, if you know that you will receive a Form 1099-MISC from someone, and/ or it is the first time you have ever received such a form, be prepared that your taxes for the year may be higher than usual. You will have to consult with a tax professional to estimate what your tax liability might be.