You’ve Got 1099 Problems But This Year Ain't One
Listen, I’m not trying to bring up all those deep-down fears you’ve suppressed since last January, but it is officially October. Before we know it, the holidays will come screaming by and all the traditions will become a new memory. And, then next thing you know, you’ll be blank-staring at your computer screen navigating the start of cough cough tax season cough cough.
One of the biggest accounting requests that emerges each January is how to navigate the last-minute scramble of sending 1099s off to vendors and contractors. Who gets one? How do I know how much to record? Who do I send the information to? We’re here to help you navigate these questions now and save you from an “accounting emergency” come January.
WHO GETS A 1099?
The IRS states that Form 1099s are required for any non-employee payee paid in excess of $600 in one calendar year. More specifically, these non-employee payees should receive a 1099-NEC (among the many other 1099 options), which will be the focus of this post. Individuals, partnerships, and most LLCs who receive payment from your business are required to receive this form. This includes, but is not limited to, the many virtual assistants, contractors, and vendors you might utilize throughout the year.
DO I REALLY NEED TO SEND A 1099 TO AMAZON FOR ALL OF MY OFFICE EXPENSE PURCHASES?
No. You do not need to send a 1099 to corporations, S-corporations (or entities that are taxed as such), or non-profit organizations. A good rule to follow if you don’t know the entity type is to request a W-9 (see below). Or, if you’re in a bind, you can always send a quick email to ask.
HOW DO I TRACK THIS?
Many small businesses work with vendors and contractors throughout the year and don’t realize they should be tracking and reporting these payments at year end. It’s best practice to start incorporating 1099 tracking in your Accounts Payable process. When you onboard a new vendor or contractor, you should also request that they fill out a Form W-9, which captures the payee’s name or business name, address, and tax identification number.
Other important considerations in tracking payments to 1099 recipients are:
1) make sure your accounting system is tracking the payee as a 1099 recipient (platforms such as QuickBooks have a 1099 checkbox in the vendor account setup area),
2) ensure only one vendor account is being used per recipient. Things can get complicated if you have one recipient listed under multiple names within your accounting system (ie: contractor Jess Garcia has two different vendor accounts: Jessica Garcia and Jess Garcia) and,
3) take the time to review expense accounts to ensure all applicable expenses have a payee name attached to the transaction.
WHO DO I SEND THE INFORMATION TO AND WHEN?
The IRS sets two deadlines for 1099 filings. All 1099s must be sent to payees by the last day of January each year. The subsequent reporting to the IRS is due by the last day of February. Most accounting software platforms can assist in electronically sending both the 1099s to recipients and Form 1096 along with copies of each 1099 to the IRS. Small business owners can also download the forms from the IRS website, manually fill in, and mail the returns. However, Form 1096 must be ordered (for free) from the IRS if it is to be mailed as it is a scannable document with a unique barcode. You can also use the IRS’ File Information Returns Electronically (FIRE) portal to file for free after applying for a TCC. Other websites, such as Tax Bandits, allow you to manually enter 1099 information and electronically file and send both the 1096 and 1099s.
HOW DO I LEARN MORE?
Stay tuned as we plan to have a pop-up 1099 workshop where you can bring all your questions in the coming weeks. You heard it here first - see you there!
by: Erin Pohan
