“What’s in a name? That which we call a rose. By any other name would smell as sweet.” says Juliet. Who knew Shakespeare could one day be applied to bookkeeping?! 😲 Today, I’m going to use this quote in reference to numbers. And tax forms. Any way you shake it, tax forms prove confusing. Whether you call it a Schedule C or Schedule Be-Bop-Flop, it’s going to have the potential to give some of us a migraine. The new tax reform touts it will make our 2018 taxes feel more simple, but as business owners I have a feeling a lot of us will still feel confused at the end of the next tax season. If you receive any kind of tax form in the mail and don’t fully understand what it is, find a tax professional you can put on speed dial. Knowing what is contained on the forms you get (especially those pertaining to your business!) might be important for your day-to-day bookkeeping.
So, what’s the 1099 number all about in the title of this post? It’s part of the name for numerous IRS tax forms which represent many different types of income earned except for wages earned as an employee (that’s a W-2 form). Think dividends (1099-DIV), payments from government (1099-G), proceeds from retirement accounts (1099-R)…I could go on and on. I’ll spare you the details as there is typically one form that proves most important to direct sellers who are considered “independent consultants” of their beloved direct sales company – the (in)famous 1099-MISC, Miscellaneous Income!! You will receive this form if you have earned $600 or more in non-employee compensation and/or purchased at least $5000 in product from the company for purposes of resale. It is incredibly important to know EXACTLY what is on this form, otherwise you run the risk of double counting some of your income. And therefore paying extra taxes!! While I cannot tell you for sure what your company includes on YOUR 1099-MISC form, I can tell you what (in the Direct Sales world) is usually included. Check your company’s consultant policies and procedures manual or contact the accounting department for a definitive answer. Direct Sales/Network Marketing non-employee compensation most often includes:
$$ – Manager Commissions (monies earned from growing a team – yay!)
$$ – Incentive Prizes and Awards (valued at Fair Market Value)
$$ – Incentive Trips earned (valued at Fair Market Value)
What is often not included on the 1099-MISC is the value of products earned as a host/hostess or the profit a consultant makes on the sale of the products.
Arming yourself with this information will simplify your bookkeeping and make communicating with your tax professional more efficient, saving you headaches and maybe even some cold, hard cash in the process!