Square 1099 Tax Guide: Everything You Need for Tax Season
Doesn't matter if you sell a product or a service, doing your Square 1099 taxes is not something to take lightly. You need to know exactly what you are doing to lower your tax bill and be prepared for an IRS audit. This guide has all the information you need to pay as little taxes as humanely possible while fully satisfying the IRS.
How To Do Your Square 1099 Taxes
1. Get your total income and transaction information from the proper 1099 form
2. Collect your Square fees and other tax deductible business expenses
4. Fill out a Schedule C: Profit or Loss From Business form
3. Figure out if you have to pay your taxes quarterly
5. Calculate how much you should set aside for your 1099 taxes
The first step when finding your income information is to figure out which 1099 form you need.
1099-K vs 1099-NEC
The 1099 form you receive completely depends on how many sales your business processed through Square.
Payment settlement entities such as Square are required by the IRS to report transactions on a Form 1099-K, but only if a business meets certain sales thresholds. In other words, a 1099-K is a summary of the total third party network transactions that your business processed through Square for the tax year.
As a general rule of thumb, you will receive a 1099-K if:
- The gross sales of your business were $20,000 or more and
- You had 200+ in reportable payment transactions
However, 1099-K reporting requirements can vary depending on your location. If you are from the District of Columbia, Maryland, Massachusetts, Vermont or Virginia then you will get one if you made $600 or more in total sales. Missouri has a slightly different threshold of $1,200 in qualifying sales, while Illinois is $1,000 and 3+ transactions.
If you process $600 or more transactions and are not qualified for a 1099-K then you will receive a 1099-NEC, which stands for Non-Employee Income. This form is replacing the 1099-MISC from previous calendar years for independent contractors.
It's important to note that even if you don't receive a 1099 form, you still have to report your income to the IRS. If you don't qualify for one, then you can get your income information by downloading the Sales Summary Report from your online Square account.
Once you determine the 1099 form you need the next step is finding it.
When and How Do I Get My 1099 form?
Your IRS Form 1099-K and 1099-NEC will be available by January 31st in most cases. Square will not send them in the mail to you usually, but will have them available online. You can download your 1099 forms from the Tax Forms Tab of your Square dashboard.
If your form is not available by then, contact Square's customer support to find out when yours will come.
What if I Receive Multiple 1099s From Square?
If you have separate Square accounts set up, then you may receive more than one 1099 form.
This can sometimes be a problem because your income could be double reported to the IRS, for a single business, which could raise your tax bill unnecessarily.
Square usually combines your sales information for accounts that have the same Taxpayer Identification Numbers (TIN), such as an Employer Identification Number (EIN) or Social Security Number (SSN) to see if you qualify for a 1099-K. However, usually your 1099 forms will show up in the online dashboard of each separate account.
The easiest way to prevent this is to have all your accounts under the same tax number and business name when they're under the same legal entity. If your information is incorrect, you may need to contact Square to get it updated.
Once you have all your income information from your 1099(s) then you need to find your tax deductible expenses.
Writing Off Square 1099 Business Expenses
Don't be alarmed if the gross sales on your 1099-K are higher than what you actually received in your bank account. This is because Square subtracts a transaction fee before the money gets transferred to you. The good news is these debit or credit card processing fees are tax deductible and can be written off to lower your tax bill.
The easiest way to find the exact amount that Square charged you in fees, is to download the Sales Summary Report from your online Square dashboard. Once you have this information, you need to fill out a Form Schedule C: Profit or Loss From Business with all your business income and expenses.
Some other tax deductible business expenses are:
- The cost of your Square reader
- Business entity or legal fees
- A 1099 expense tracking software
- Any training to improve your products, services or business
- Your office space rent
- The business portion of your phone
- Laptops or other equipment
- Part of certain meals
- Vehicle use for business trips
- Employee payroll
- The home office deduction if you qualify
- Business insurance
These are only a few examples of the many 1099 independent contractor deductions you can write off and they totally depend on the type of business you run.
Once you have all your tax deductible expense information, you need to figure out if you owe estimated quarterly taxes.
When Are My Square 1099 Taxes Due?
If you are expecting to owe the IRS $1000 or more at the end of the calendar year, then you need to file quarterly income taxes. Knowing how much you have to pay can be tricky. Use a quarterly estimated income tax calculator to determine the exact amount you will owe the IRS.
Quarterly taxes are due:
Q1 - April 15th
Q2 - June 15th
Q3 - September 15th
Q4 - January 15th
*These dates are subject to change due to COVID.
If you are a small business and expect to owe less than $1,000, then you only have to file your tax return annually before the year end by April 15th.
Square is required by law to report your transactions to the IRS if you met your location specific income threshold, even if you are a non-profit company. If a payee fails to file their taxes, they could owe the IRS up to 25% in late fees and have an audit.
Another crucial point to remember is Square only tracks your debit and credit card payments. You must also report your cash and check income. Make sure you save the proper amount from all your transactions to avoid under reporting penalties.
Unsure About How Much You Owe? Use a Tax Calculator
Determining the exact amount to save for taxes can be challenging. You don't want to pay the IRS too much or too little. Take the guesswork out of your taxes and use an income tax calculator tool to discover your exact liability.