This month, one of the most important financial tasks that you need to accomplish is completing any necessary 1099 returns for your team, contractors, and company vendors. For many business owners, this can be a source of great stress, because of the tight deadlines and the fear of the huge penalties for doing them wrong.
I promise – it’s easy. And I have a 3 step process you can walk through to take care of them right now.
(If you just want us to take care of them for you – just book a call to chat with us about how you can become a client and we’ll take care of it!)
It’s just as important that you issue your 1099s correctly as knowing who to NOT issue them to. So this isn’t a situation where you should just send them out if you aren’t sure. I can’t even count the number of tax issues we have had to deal with over the years for clients whose clients have screwed up their 1099 reporting.
Here’s why this is such a big deal:
If you pay your vendor via PayPal and you issue them a 1099, the IRS receives a duplicate reporting of that same income, once from PayPal and once from you. Only the IRS doesn’t know it’s a duplicate. And they are then looking for your team member to claim twice the amount of income on their tax return. And then they get a letter, and we have to spend time on the phone with them fixing it. And then you will have to pay to create amended returns. It creates a mess for everyone. Please stop. Follow the steps below and only issue a 1099 to the people who should receive one.
And also – if your financial team isn’t up on the latest rules on these & is giving you different advice from what I have laid out below – then you need to hire a new accounting team who keeps up on the latest updates to your online business. Think about what else they may not have updated knowledge on and how much that could be costing your business.
If you have a client who is asking you for a W9, here’s an easy response you can swipe/edit and send back to them.
Hey XX, I received your email asking for my W9 for the XX you paid our company for this year. Great news for us all, you aren’t required to issue a 1099 to us since you paid us with a merchant account/paypal/etc. (edit to include how they paid you).
My accountant has a great blog post all about this if you want to check it out to save all of that extra paperwork this year. Here’s the link: https://empoweredprofit.com/the-411-on-1099s/
Have a great day! <Sig>
OK – climbing down. Now we can begin
You will need to have a list of everyone that you paid throughout the year so that you can review it during this exercise. The easiest way to pull this report is from QuickBooks (assuming you have your records all updated in there). You can use the Expenses by Vendor Summary report (but you will want to double check this, because if you made an error and paid someone as a ‘customer’ then they won’t show up on this report.
You can also run a Profit & Loss report and click into each account to see who the vendors are that have payments posted to them and make a manual list.
Then, you need to do is decide WHO needs to receive a 1099 from you. Here’s an easy way to determine that, with these quick questions:
You only need to issue a 1099 to those vendors who provide you with services. For example, your graphic designer, business coach, virtual assistant, etc. You don’t need to send one to someone who you bought a book from, or office supplies, etc.
This is my favorite one, because it saves so much work if you have paid everyone via PayPal, credit, or debit card (like most of my clients do). This is a recent change to the 1099 rules, and it’s one that is often missed. (See rant above..) You only need to issue a 1099 for payments made via check, direct deposit, wire, or electronic payment from your bank account. Side note – if you are using a personal Venmo account for payments for your business, please stop immediately. Thank you.
This is pretty self-explanatory. Only amounts more than $600 have to be reported on 1099 returns. If you paid someone partially via checks and partially with credit cards, only total the amount paid via check.
To answer this question, you will need to look at their W-9 form, specifically box 3. If they have checked the first box “Individual/Sole Proprietor or Single Member LLC”, the 4th box for partnership, or the 5th box for estate then you will need to issue them a 1099. If you don’t have a W9 on file for them, request it from them ASAP! Use this link to download and send to them.
The exception to this rule is your attorney. For some reason, you are required to report anything over $600 paid to your attorney on a form 1099 even if they are a corporation. (unless, of course, you paid them via credit card or PayPal, then the above rules apply)
*Pro-Tip* Anytime you hire a new vendor, (depending on how you will be paying them) – grab their W9 right away as part of your onboarding process – before you pay them! That will save you from scrambling to gather them next January.
Now that you know WHO you need to issue your 1099 returns to, you can use an online software like Track1099.com to actually issue them. No need to trek to the office supply store to buy a package of the forms, struggle with the alignment on your printer, papercut yourself trying to stuff all of the envelopes…? Make it easy on yourself and use Track1099.com.
You just enter in the information and they send the 1099 returns to everyone via email. It’s totally secure because the recipient has to verify their identity before downloading their form. And, they take care of submitting everything to the IRS on your behalf, which is HUGE since the penalties for late or missed filing can really add up – like in the thousands. For real.
You need to issue your 1099s to both the recipient and the IRS by January 31st. So this needs to be a top priority when you return from our holiday break. And if you would rather not stress about it, just book a call with us and we can take care of it for you, easy peasy.
From the IRS: