Hi @parkershinsky. First, you need to retain the services of a qualified CPA/Accountant in your state to help you set up your tax side of the business. I can answer your question at a very high level, but it sounds like you should find a professional to go over things with you. If you are unsure where to start to find one, I can highly recommend the folks at Score Business Counseling. They have a competent team who can mentor you and help you get started on the correct path, not only in the area of taxes but for your entire business. Their services are low-cost usually, and in some cases come with no charge.
Now, 1099s serve a few purposes. One is to remind you of income that you need to book and report to the various tax agencies. The second is to provide those tax agencies with evidence of un-reported income so that they can remedy that situation. Another is for you to report expenses that you made to certain businesses or individuals. I, for example, send a 1099 to my landlord (a sole proprietorship) every year. Anyway, as an example, let’s say that you get three 1099s, as follows:
- $1,000
- $5,000
- $10,000
If your tax return for that year only shows $10,000 in income, the IRS is going to wonder where the other $6,000 reported on 1099s is, and they will probably audit you. That’s what’s going on here. You do not have to worry about being double-taxed. As long as what you report on your tax returns at least includes everything reported on 1099s, then you will be just fine. But, again, I’ll say that I strongly suggest that you enlist the services of a tax/accounting expert near you. I’ve been in business for twenty-plus years and you can trust me when I say that a trusted accountant and attorney are two of the best business investments you will ever make.
I wish you well on your new adventure!