Tax time is still a long way off, but it’s never too early to start preparing. The best way to prepare is to start using several basic processes to save a great deal of time and later. We’ll share several of these in future posts, but today we’re going to talk about 1099s as they’re among the first tax related filings each year.

Businesses are required to complete and file a Form 1099 for various types of payments made during the tax year. Companies must issue a 1099 to any individual or unincorporated business (such as a sole proprietor or partnership) paid at least $600 for:

Services performed by non-employees for company work (e.g., independent contractors or freelancers.)
Services performed by other companies (e.g., law firms, accounting agencies, cleaning services, etc.)
Rent payments
Interest and dividend payments.
Other types of payments, like royalties or broker payments in lieu of dividends

A Form 1099 must be provided to the individual or company by January 31 of the following year that the service was performed. The IRS must also receive this information, so It’s generally a good practice to submit these at the same time; however, the actual deadlines for filing with the IRS are usually February 28 (if filing on paper) or March 31 (if filing electronically).

To complete a 1099 will require the following information from the recipient:

Name of individual or company
Address
Taxpayer Identification Number (TIN) for a company or Social Security Number (SSN) of an individual
Amount paid

There are also different versions of Form 1099 for different types of payments (e.g., 1099-NEC for non-employee compensation), so be sure to use the correct form for the type of income you're reporting.

One of the reasons to get started on this process early is because failing to provide 1099s to recipients or to the IRS on time can result in penalties. Those penalties depend on how late the forms are filed, if all the information is provided and correct, and whether the failure is intentional or not. This means it’s very important to keep accurate records and to have all of the required information before it needs to be filed.

So what are some basic processes to make filing 1099s easier?

Collect recipient information before the first time you pay them
Keep accurate financial records of all payments
Keep a list of all recipients who’ve been paid $600 or more per year
Schedule time on your calendar to file 1099s at the beginning of the year

The government makes it very easy to collect this information from your recipients with the Form W-9. You can share this link with recipients to have them complete and send the information to you. It’s also a good idea to, as one of those basic processes, request a W-9 before you issue any payments to new contractors or other potential 1099 recipients. You’ll be surprised how many of these individuals or companies are slow or resistant to respond when it’s time to file.

Keeping accurate records is made much easier by using accounting software like Xero or Quickbooks, but the software alone won’t help much if it’s not set up or used properly.

Brightleaf works with our clients where they are to help them get where they want to be. We provide full service bookkeeping, accounting, and advisory services for our more advanced clients; however, we realize that newer or smaller businesses don’t have the same needs as larger companies… or the same budget. This is why Brightleaf offers a reasonably priced package to set up your accounting software for your specific business along with training so you can do your own bookkeeping. Part of this training is working with the business owner or manager to understand how the software works with actual banking transactions for the company followed by a check-in several weeks later to check on additional transactions to make sure it’s being done correctly. We also answer questions for the business and provide additional tips based on what the business’s needs are.

Running a business is complicated and time consuming and there are always issues that come up that may not be easy to solve. Getting your 1099s filed properly and on time is just one of those issues. If you need help getting your accounting problems solved, have business questions you want answered, or even want to hand that work off to a team of professionals, reach out to the professionals at Brightleaf so you can focus on what you’re best at!

- John Thrush