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Best Practices for Managing 1099s

  1. Know when a 1099 is needed
  2. Gather the information required 
  3. Ensure accuracy of information
  4. File on time 
  5. Confirm details every year

When is a 1099 needed?

Here is the IRS requirement (https://www.irs.gov/forms-pubs/about-form-1099-misc)

File Form 1099-MISC for each person to whom you have paid during the year:

  • at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
  • at least $600 in:
    • rents
    • services performed by someone who is not your employee
    • prizes and awards
    • other income payments
    • medical and health care payments
    • crop insurance proceeds
    • cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish
    • generally, the cash paid from a notional principal contract to an individual, partnership, or estate
    • payments to an attorney
    • any fishing boat proceeds

In addition, use this form to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. 

By far the most common use for a 1099 is to record payments made for services performed by someone who is not your employee.

The guideline says person, but 1099s must be filed for individuals, partnerships or LLCs. Corporations do not receive 1099s, with one exception: any attorney who receives payments over $600 in a single year should receive a 1099, no matter the business entity.

Perhaps the best way to know whether a 1099 will be required is to ask the company to supply a W-9 when the business relationship begins.

Gather Information for 1099s

When you select a new vendor that will expect a 1099, require a W-9 from them at the time they submit their first invoice.

Make it a requirement to have the W-9 on hand before you approve payment on the invoice and confirm that it contains the Tax ID for the vendor. If a vendor fails to provide the Tax ID, the business should technically withhold taxes from the payment.

Keep the W-9 in your vendor files. It should not be sent to the IRS.

Ensure Accuracy

Be sure that all payments made to vendors are categorized by vendor and not just by category or expense line item. 

Be sure that payments made via electronic means (PayPal, debit/credit card) are recorded that way, because those payments should not appear on your 1099 for the vendor.  It will be listed instead on the 1099 the payment processor provides.

Run 1099 reports from QuickBooks mid-year, in September and in November, to be sure you have everything you need to meet the filing deadline in January.

File on Time

The deadline to provide 1099s to vendors is January 31 each year.

Penalties for 1099 reporting errors are becoming more common. Incorrect information, typographical errors and late filings are the most common causes for penalties.

Confirm Details Every Year

At the beginning of each new year, review your list of “regular” 1099 vendors and request an updated W-9 for the current year.  

If you find that you don’t have everything you need from your vendors, or that some of your vendor payments aren’t showing up as expected, call us. We’ll be happy to work with you and your vendors to get everything squared away in advance of the January 31 filing.