It’s 1099 Time! Let’s talk about 1099 forms and how to prepare for this annual filing. Here is a brief overview of the requirements to help this process go more smoothly.

What are 1099 forms?

1099 forms are information returns. The IRS has filing requirements for just about every kind of financial transaction you can imagine.

Two of the most common 1099 forms for business owners are:

1. 1099-MISC to report rent and royalty payments
2. 1099-NEC to report payments for services to nonemployees

Who files 1099 Forms?

• Businesses
• Self-employed individuals
• Rental property owners

The forms report amounts paid to qualifying payees that total $600 or more during the calendar year. 

Who is a qualifying payee?

Qualifying payees for 1099-NEC forms are generally contractors and professional service providers, like electricians, attorneys, or website designers. Note that payments made by credit card and through PayPal do not need to be included on Form 1099 as they are reported separately by the payment processing companies. Recipients of 1099-MISC (commercial property owners and published authors) forms will have received rental income or royalties during the year. There are always exceptions! Read more: IRS 1099 Rules

When to file?

You must file 1099s with the IRS and provide a copy to the payee by 1/31. If you’re working with a bookkeeper or accounting firm, they will need this information well ahead of that date to complete the filing before the deadline.

Although the forms are due by the end of January, the best way to ensure that you file these correctly is to prepare throughout the year. First, when you hire a contractor or attorney, ask for their W-9. Second, when you record a payment to them in your accounting records, tag them as a 1099 recipient. Third, before the end of the year, review your expense summary by vendor and scan for any missing contact details and amounts that don’t make sense. Troubleshoot any issues before January by reaching out to the vendor to confirm amounts paid or to request an updated address, for example. If you do these things, preparing and filing 1099s in January will be a breeze!

Why file?

Not filing the required 1099s can lead to penalties and scrutiny from the IRS. For late 2024 information returns filed up to 30 days late, the penalty is $60 for each one, $120 each if filed between 1-6 months late and $310 each if filed more than 6 months late. The IRS also charges interest on those penalties, which is at the Federal short-term rate plus 3 percentage points.

If you have questions, reach out to our helpful bookkeepers at Allen+ Koe!