Introduction
As the calendar inches closer to the end of the year, businesses should be gearing up for the annual task of preparing and filing 1099 forms. The task of evaluating every vendor transaction exceeding $600 so quickly after year-end can be daunting—advanced preparation is key to success. Below, we examine a few steps to help you stay on top of your 1099 filing responsibilities and streamline the process at year-end.
The Basics – What Is a Form 1099?
Forms 1099, including Form 1099-MISC and Form 1099-NEC, are used to report various types of payments other than salaries and wages, such as contract work, rental income, or dividends. There are several 1099 forms used, depending on the type of payment.
Form 1099-NEC is the most common form and is used when businesses pay for services that have been performed by a non-employee. This also is the form you would use if you paid for legal or accounting services.
Form 1099-MISC is primarily used to report rent paid, as well as certain prizes and awards. A few other uncommon uses of this form include more than $600 in fishing boat proceeds, medical and health care payments, and crop insurance proceeds. Form 1099-MISC also is used for royalty payments and broker payments in lieu of dividends ($10 limit).
It's important to note that as a payer, you’re required to provide a 1099 form for payments made in excess of $600 over the course of the year to any non-employee and file a copy with the IRS.
Start Early, Collect W-9 Forms Promptly
Preparing in advance is critical for successful 1099 filing. Confirm the business has collected W-9 forms from all appropriate vendors. W-9 forms provide the vendor data, such as name, EIN, and address, needed to file the annual 1099 form. Acquiring the W-9 form is the first step in the 1099 preparation process. It is a best practice to collect W-9 forms from vendors throughout the year, ideally at the time of payment, to avoid a last-minute scramble. The W-9 forms can even be attached to the vendor in QuickBooks for administrative convenience.
Identify Reportable Payments
Know the different types of payments and which 1099 form they are reported on. Categorize and track vendor payments into relevant categories throughout the year. Segmenting payments into categories such as rent, non-employee compensation, royalties, and interest will help make sure the payments are reported on the correct form. Keeping track of these various payments throughout the year will help expedite the filing process.
Stay Organized Throughout the Year
Staying organized is the best way to reduce errors and remain efficient. Utilize a cloud-based accounting system to help streamline data management. Conduct regular reviews of your vendor payments to confirm they are categorized correctly and that you have the W-9 form on file. Create a central filing system for all W-9s, invoices, receipts, and contracts. Maintaining clean and accurate records is key for accurate 1099 filing.
Utilize Technology for Filing
Electronic filing offers many advantages; it can speed up filing forms and reduce errors. Many of today’s accounting software platforms integrate with various online filing options and offer automation tools that assist with the generation, distribution, and e-filing of forms. Leveraging your accounting software can significantly expedite the preparation of 1099 forms.
Know the Deadlines
There are various filing deadlines to be aware of for 1099 filings.
January 31 is the deadline to file the recipient copy for both types of 1099 forms. Forms 1099 NEC must be filed with the IRS by January 31. Forms 1099 MISC must be filed with the IRS by February 28, or March 31 if you file electronically.
Failing to file on time can result in penalties ranging from $60 to $310 per form, depending on how late the form is filed.
Conclusion
Mastering the 1099 filing deadline requires planning, attention to detail, and being proactive. Starting early, maintaining accurate records, and utilizing technology can help businesses navigate the process with ease and confidence. Please contact a professional at Forvis Mazars if you would like to discuss outsourcing your company’s Form 1099 filings or submit the Contact Us form below.