Get excited because it's that time of year again to file your 1099 forms for service based contractors that you have paid during the prior fiscal year. Here's the good news, instead of paying high amounts to have the 1099s done for you, just do them yourself with this simple process.
Our first step in the 1099 process is to identify who needs a 1099 out of the people that your company has paid?
Businesses are required to issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year. For example, a taxpayer might receive a 1099 form if they received dividends, which are cash payments paid to investors for owning a company's stock. Or, your Accountant, whom is not a corporation, for the paid services they provided during the year.
The Form 1099 process I follow each year for my clients is very easy. Again, the first step is identifying which vendors need a 1099 from you.
In order to do this, I perform a detailed review of the Income Statement or Balance Sheet accounts that contain payments to "service providers" for the prior fiscal year. These are vendors that have provided my client's business some type of service that did not involve the sale of a product.
Because of the software I use with my clients, QuickBooks Online, I can export to Excel and create my list of 1099 recipients by manipulating the data into subtotals. I now have a list of all potential 1099s that I will issue.
From this list, I delete anyone that was paid under $600 as we are not required to send a 1099 out for total payments under this dollar amount to one vendor.
Next step is to make sure there is a W9 Form for each vendor.
Let me save you some time and suggest a process if you don't already have one for maintaining W9 information on contractors. Do NOT try and get all the W9s at the end of January when you only have until 1/31/XX to file the 1099s. It will not be pretty. The best process is to collect the contractor's W9 information BEFORE you pay them their first payment. Then, at the end of the year, you have a pretty little file that contains all of the information you need.
Yes, we are nerding out right now, but have fun with it!
Ok, next I take my exciting Excel spreadsheet and verify that I have the full list of vendors and all necessary information (i.e. W9s).
My final step in this smooth process is to use a 1099 service website to file the forms. I use tax1099.com, but there are many services that you can use online that are effective and inexpensive.
Once you make your choice of which service to use, set up your account, fill in the information for each 1099 recipient and hit send!
Boom, you're all done.
One more point, be conscientious to your contractors. Don't be late with getting this information out to them as it only pushes out their ability to file taxes, which may have financial ramifications on them.
If you ever have any questions about 1099s, general accounting, or need accounting help, please feel free to contact me!
Blue Collar CFO