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.
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.
What about reimbursement of bank fees to the consultant? Should that be included on the 1099 form?
Reimbursements can go either way. Please see my later post on “Should Expenses Be Included On The 1099?”
I hope that helps!