YOUR GUIDE TO EVERYTHING RE: 1099s!

YOUR GUIDE TO EVERYTHING RE: 1099s!

1099 season is almost upon us... ugh 😖, did you just cringe? Don’t worry, so did we! But fear not friends, we are here to decode the enigma of 1099s so you can sleep soundly come January. Get ready for both written explanations as well as some links to videos on how you can prepare and file 1099s. And if you’re thinking “I ain’t got time for that!” - fear not, we've broken it down into 5 simple steps and when you need to add them to your calendar!

First things First: A Glossary of Terms!  

Now, if you’re experienced with the world of 1099s and just need a refresh, feel free to skip over this section. If you’re a novice, this will be a good starting place, or if you’re just looking to save yourself some reading time go ahead and skip over it but just know it’s here in case you get mixed up with any terminology as you dive deeper into this super fun and entertaining post!  

• Form 1099:
• In laymen's terms, it’s a signal flare to the IRS that you paid a non-employee X amount of money in the last year. When you prep a 1099, one copy goes to the government and one copy goes to the non-employee (i.e. contractor) so that they can report what you paid them on their own tax return.  
• There are 21 different types of 1099 forms, but the most common ones are a 1099-NEC & 1099-MISC.  

• Form W-9
• This is like your contractor’s business card but for tax purposes. It will provide you with their official business name, address, and tax ID number all of which you need to be able to issue them a 1099 in January. Here’s a link to a blank form W-9. 

• 1099-NEC
• A type of 1099; psst, NEC = non-employee compensation. This is issued to non-employees (contractors) to whom you purchased goods or services for $600 or more over the course of a calendar year. To review all the specifics, check out the form instructions here. 

• 1099-MISC
• A type of 1099; and you guessed it, MISC = miscellaneous and covers some miscellaneous services that you may pay non-employees for such as... 
• $10+ of royalty fees 
• $600+ of rent, prize money (who knew?), medical payments, or gross proceeds you paid your lawyer from that nasty lawsuit settlement 
• There are a few other situations in which a 1099-MISC should be issued, so make sure to read the full gamut here or dive into the specific instructions here. 

A Refresh: Contractor vs. Employee 

A contractor is a freelancer who is hired for a specific job, manages their own schedule, typically uses their own equipment or tools, and has an array of clients. Contractors are issued 1099s in January of each year.  

An employee is someone who reports to you, works on a schedule you determine, uses your equipment, and is on your payroll, in other words is issued a W-2 by your payroll provider at year end. (In case you missed it, we did a deep dive into payroll & employees back in November, click here to check it out!)  

Which Contractors Receive a 1099? 

This all depends on a few things like how much you paid them, how you paid them, and entity type. You can find the full run down by accessing the form instructions linked in the Glossary of Terms section above, but we’ll give you the basics.  

1. How much did you pay them? If you paid a contractor under $600 in a single year, they do not need to be issued a 1099. Only eligible contractors who were paid $600 or more will receive this form. Unless you paid someone royalties, then the threshold lowers to $10.  
2. How did you pay them? If you paid someone by credit card or a 3rd party payment app like Venmo, PayPal or Square, you do not need to issue them a 1099 for these funds. However, anything you paid to an eligible contractor via ACH or check will need to be included in a 1099.  
3. What is their entity type? 1099s are issued to contractors who operate as an individual, sole proprietor, partnership, and some LLCs. If a contractor is operating as a corporation or an LLC that files as a C- or S-Corp they do not need to receive a 1099. If you are unsure what type of entity your contractor is, it’s always best practice to request a W-9 from the contractor to alleviate any guess work.  

Due Dates and Deadlines 

Mark your calendar: 1099s for the prior calendar year are due to the recipients by January 31st and to the IRS shortly thereafter. For example, if you are issuing someone a 1099 for 2023, it will be due on January 31st, 2024. But you don’t have to wait till January to start getting your ducks in a row. Half the battle is getting your contractor’s information, so start outreaching to them now for updated W-9 information.  

To e-File or Not To e-File, That is the Question!  

In the past, you had the option to prepare 1099s manually and use good ole fashioned snail mail to submit them to the IRS, but this year the rules have changed. If you plan on filing 10 or more 1099s, you are required to do so electronically. 1099s can be filed via the IRS’s own online platform or with a 3rd party app such as QuickBooks that helps walk you through the process.  

PRO-TIP: We are personally big fans of using a 3rd party app that either is built-in or can connect to your accounting system to help lift the manual entry labor load.  

QuickBooks Online: Your 1099 Command Center 

Speaking of built-in 3rd party apps, the 1099 module in QuickBooks can be your right-hand during this process, helping you track payments and prepare forms. It’s a great tool for those that would like to self-prepare or who are just starting out! In fact, we’ve put together a few short videos if you’re using QuickBooks Online to help guide you through the process using their module. 

• A few things to note!  
• QuickBooks Online’s module, while wonderful, does take some “setting up” as explained in the video and requires that all of your vendor payments are properly categorized.  
• Once a 1099 is filed via the QuickBooks Online module, you are not able to amend it. So, be sure you get it right the first time.  

Your 1099 Flight Plan 

Now that you have the low down on 1099s, we’re going to map out your next 5 simple steps: 

1. Review your vendor information in your accounting system to identify who you may need to request a W-9 from. A blank W-9 can be found here. 
• If you’re using QBO, watch thisvideo for help!  
• Due Date: NOW!
2. Enter your vendor’s W-9 information. As you receive those forms back, input that info into your accounting software. This will make filing a breeze!  
• Due Date: NOW! 
3. Make sure your books are reconciled through December and all payments to vendors have been recorded and properly categorized for the entire calendar year. 
• Due Date: early to mid-January  
4. Start preparing your 1099s.  
• Due Date: mid-January  
• Watch this video to learn how to use the QBO module.  
5. File your 1099s!  
• Due Date: January 31st 

So, as you gear up for the end of year financial wrap-up, remember: 1099s don't have to be a source of panic. With a bit of preparation and the right tools, you can master this dreaded task in no time. Oh, and if we may, one last piece of advice... block some time on your calendar now for your five steps! This life hack will ensure that the time is already set aside for when those due dates start to sneak up on you!

Until our next financial adventure, keep those books balanced and your financials in check!😉