Preparing and Filing Form 1099s: Get Ahead for Next Year

Filing Form 1099s is an essential part of tax compliance for businesses that have made payments to contractors, freelancers, and other non-employees. Proper preparation can help you avoid penalties and ensure that your filings are accurate and timely. This guide will walk you through the steps for preparing and filing Form 1099s. Get ahead for next year by understanding what information you need now and following best practices throughout the year.

Understanding Form 1099

Form 1099 is used to report various types of income other than wages, salaries, and tips. There are several different types of Form 1099s, but the most common for businesses is Form 1099-NEC (Non-employee Compensation). This form is used to report payments made to independent contractors and freelancers. The second most commonly used is Form 1099-MISC. If your business pays rent for a building or equipment, you likely will need to file this form as well.

Who Needs to File Form 1099?

You need to file Form 1099-NEC if:

You paid $600 or more to a non-employee during the year.
The payment was for services provided in the course of your trade or business.
The payment was made to an individual, partnership, estate, or, in some cases, a corporation.
Anytime you pay an attorney in excess of $600 in a year you will need to issue them a 1099-NEC, even if they are a corporation.

You need to file Form 1099-MISC if:

You paid $600 or more in rents during the year.
The payment was for rental activity in the course of your trade or business. This includes building or equipment rentals.
The payment was made to an individual, partnership, or estate.

Collect Necessary Information

To prepare Form 1099s, you need the following information from each payee:

Name: Full legal name.
Address: Current mailing address.
Tax Identification Number (TIN): This can be a Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN).

Using Form W-9

Before making any payments, request that your contractors complete Form W-9. This form will provide you with the necessary information to fill out Form 1099.

Track Payments

Throughout the year, keep detailed records of all payments made to non-employees. This can be done using accounting software or through manual tracking. Ensure that each payment is documented with the date, amount, and purpose of the payment. Include payments made by cash or check and payments made by Zelle or other ACH from your bank. Do not include payments made by credit cards or through a 3^rd party payment service such as PayPal or Square. Be sure to check with your accountant to confirm which payments types should be included as payments through 3rd party services can be tricky.

Deadlines

Recipient Copy: Provide the recipient with their copy of Form 1099 by January 31st.
IRS Copy: File the IRS copy by January 31st for 1099-NEC if filing electronically or by mail. File the IRS copy for 1099-MISC by February 28^th if filing by mail and by March 31^st if filing electronically.

Filing Methods

You can file Form 1099s with the IRS in two ways:

Electronically: The IRS encourages electronic filing through the Filing Information Returns Electronically (FIRE) system. There are many services out there that offer e-filing assistance.
By Mail: If filing by mail, send the forms to the appropriate IRS address for your location.

Keep Records

Maintain copies of all filed Form 1099s and the supporting documentation for at least seven years. This includes the W-9 forms and any records of payments made. You do not need to get a new W-9 every year, but it is good practice to request new forms every few years to ensure your records stay up to date.

Common Mistakes to Avoid

Missing the deadline: Late filings can result in penalties. Collect info from your vendors throughout the year so you are ready at year-end.
Incorrect TINs: Ensure TINs (taxpayer identification numbers) are correct to avoid mismatches with IRS records. If payments are made to an individual, make sure that the TIN provided is their SSN. If payments are made to a business, the TIN should be an EIN (employer identification number).

Conclusion

Preparing and filing Form 1099s may seem daunting, but with proper planning and organization, it can be a straightforward process. Start by collecting accurate information from your payees, keep detailed payment records, and adhere to IRS deadlines. By following these steps, you can ensure compliance and avoid unnecessary penalties.

As a client of EverythingCounts we have your back! We keep an eye on your vendor records and Forms W-9 already on hand. When we see a new vendor, or a current vendor that may now qualify, we send a request via our portal reminding you to collect a Form W-9. We are also available to complete the filings at year-end if you prefer to hand that task over to us.

Preparing and filing Form 1099s does not have to be stressful! Check out Avoiding Penalties on Forms 1099 for a list of best practices that you can implement NOW to get ahead for next year.