When using invoice factoring, 1099 reporting responsibilities rest with the business selling its invoices (the client), not the factoring company.
Client Responsibility
As a client, you must report the full invoice amount as income on your tax return in the year you receive payment from the factoring company. The IRS considers the amount received through factoring as business income, even though the factoring company advances the funds before your customer pays.
Factoring Company Reporting
Constrafor does not issue 1099 forms to our customers.
Factoring companies generally do not issue 1099 forms to their clients. Instead, they account for the fees they charge as a business expense on their own tax filings. Since they are purchasing receivables rather than providing services subject to 1099 reporting, they are not required to send a 1099-NEC or 1099-MISC to your business.
Record keeping for Tax Compliance
Because tax reporting is the client's responsibility, maintaining detailed records of all factoring transactions is essential. Be sure to document:
- Invoices sold to the factoring company
- Factoring fees and interest paid
- Dates of transactions and payments received
Accurate records ensure compliance with IRS requirements and help streamline tax filing. If you have specific tax questions, please consult a tax professional for guidance.