As the year is coming to an end, take a few minutes to make your tax preparation in January go smoothly. One of the earliest tax deadlines of the new year occurs on January 31, which is the filing date to the U.S. Internal Revenue Service of 1099s from your vendors.
In this post, I’ll offer guidance to streamline 1099 filing. I’ll address auditing your records, filing requirements, and software tools that can make filing easier.
Auditing Your Records
First, pull a “transaction list by vendor” for expenses set to “unspecified.” The exact directions vary depending on your accounting software. The reason for this report is to ensure that any payments you made do list a vendor.
If you have accepted transactions from your bank feed without adding a payee or vendor, your records may not be accurate for 1099 purposes. If there are payments without a vendor listed, correct those records so your reports will be accurate for reporting.
Once you have corrected and verified your transactions, pull a “vendor summary” report. This will list all vendors and the total amount paid year-to-date. Using this information, evaluate vendors based on the simplified criteria below.
- Who gets a 1099? You are required to issue a 1099 to vendors that you paid more than $600 to in 2018. That includes any individual, partnership, limited liability company, limited partnership, or estate.
- How do you know the business entity of a vendor? When you pay a company or individual, request a completed W-9 form. The vendor is required to report its status on that form
- What is a “vendor”? Any person or company you have paid for services that is not your employee.
- Attorneys. You are required to send attorneys a 1099 if you paid them more than $600 during the year.
- What payment method was used? Many of my ecommerce clients pay vendors with credit cards or PayPal. The IRS does not require 1099s for payments you made by credit card, debit card, gift card, or third-party payment networks such as PayPal. If you pay by these means, you do not have to issue a 1099. If you didn’t use an electronic method in 2018, you may want to set this up with your vendors for 2019 to avoid issuing 1099s.
Resources for Filing
The IRS website contains instructions and fillable forms for W-9s and 1099s.
Cloud-based software for electronic filing can eliminate paper headaches. I especially value cloud-based systems because they save vendor information from the prior year. If there is no address change, nothing is required except adding the new payment amount. However, you must know the vendor’s email address as is not collected on the W-9.
Third-party payroll providers that also pay contractors, such as Gusto, will often file your 1099s as part of their service. Otherwise, Track1099 and Tax1099 are leading cloud-based 1099 software services.
Preparing 1099s doesn’t have to be a chore. Put processes in place now to review your records and determine the vendors that require filing. Collect the W-9s (and email addresses), and get ready for smooth sailing in January.