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A Small Business Owner's Guide to Preparing for 1099 Reporting

amylarkin03

As a small business owner, staying compliant with IRS requirements is a key part of closing out the year successfully. One of the most important tasks is issuing 1099 forms to qualifying contractors and vendors. Preparing for this process early can save you from last-minute stress and ensure your records are accurate. Here’s a guide to help you get ready:


Plan to get 1099s out by Jan 31st
Plan to get 1099s out by Jan 31st

1. Determine Who Needs a 1099

The IRS requires businesses to issue 1099-NEC forms to contractors who were paid $600 or more during the calendar year for services. This includes individuals, sole proprietors, partnerships, and some LLCs, but excludes corporations (except for legal or medical services). Make a list of all contractors you’ve worked with and verify their eligibility.


2. Collect W-9 Forms

Before paying any contractor, you should request a completed W-9 form from them. If you haven’t done this yet, now is the time to gather those forms. The W-9 provides the contractor’s legal name, business name (if applicable), tax identification number (TIN), and classification—information you’ll need to complete their 1099.


Pro Tip: Use a secure method to collect and store these forms to protect sensitive information.


3. Verify Payment Records

Review your financial records to ensure all payments to contractors are accurately documented. Include all forms of payment, such as checks, direct deposits, and digital payment platforms like PayPal or Venmo. Note that payments made via credit cards or third-party processors (e.g., PayPal) are reported on Form 1099-K by the payment processor, not you.


4. Set Up Your Accounting Software for 1099s

Most accounting software, like QuickBooks or Xero, includes tools for tracking and generating 1099s. Ensure your contractor profiles are set up correctly with their W-9 information and payment records. Running a preliminary 1099 report can help identify any missing details or discrepancies.


5. Meet the Filing Deadline

The IRS deadline to issue 1099-NEC forms to contractors and file them with the IRS is January 31. To avoid penalties, aim to complete this task well in advance. If you’re e-filing, your accounting software or payroll provider can often handle the submission for you.


Bonus Tip: Consult Your Bookkeeper or Accountant

If you’re unsure about the 1099 process or have unique situations (like working with foreign contractors), consult your bookkeeper or accountant. They can guide you through the requirements and help ensure your compliance.


Preparing for 1099s doesn’t have to be overwhelming. By following these steps and staying organized, you’ll simplify the process and set yourself up for a smooth start to the new year. Your contractors (and your accountant) will thank you!

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