What's Included on the 1099?

There seems to be a bit of confusion on what is included in the amounts reported on the 1099-MISC when reporting independent contractor payments.

Payments made to independent contractors need to be reported if:

• You made the payment for services in the course of your business;
• You made the payment to an individual (sole proprietorship), partnership or an LLC taxed as a sole proprietorship or partnership; and
• You made payments to that independent contractor of at least $600

What should be included in the amounts reported?

• Service fees
• Referral and/or commission fees
• Payment for services, including payment for parts or materials used to perform the services if the materials/expenses were incidental to providing the service.

So, if you are working as a consultant or coach and are paid $6,500 by your client — $5,000 for fees and $1,500 for reimbursed travel expenses — your client is going to report the full $6,500 on a 1099-MISC.  You are going to report the full $6,500 in revenues AND deduct the $1,500 of travel expenses on your tax return.  Don’t try to convince your client that they don’t have to report the $1,500 — they have to report that payment and you have to report that income.  You get to deduct the actual expenses, though, so the bottom-line effect will be $5,000 in taxable net profit.