We often get the question from business owners, “Do I need to file a 1099?” The answer, simply put, is if you are paying for a service (not a product) to an individual or business, and these payments amount to $600 or more in a calendar year, you are required to file a 1099 by January 31st. Otherwise, you run the risk of accruing penalties imposed by the IRS. (Click here for specific details about requirements).
What services require a 1099?
If you own a business, then there’s a good chance you’ve paid $600 or more for a service this year. Did you outsource your marketing or hire someone to clean your office monthly? Did you pay someone to mow the lawn outside your business, or do you own a construction company and pay subcontractors to complete specific jobs for you? For all of these situations, you’ll need to file a 1099.
There are many types of services that require a 1099. Here are a few examples…
-
- Subcontractors
- Freelance marketing services
- Cleaning services
- Landscaping services
- Construction services
- Childcare providers
- Healthcare providers such as home-health providers
- Those paying rent through cash, check, or payment apps such as Paypal or Venmo
- Attorneys – All attorneys must receive a 1099 regardless of payment amount or tax entity.
* Please note this is not an exhaustive list but are some examples of services that will need a 1099.
Best practice recommendations for simplifying the 1099 process
Here are a few best practice recommendations that can help simplify the 1099 filing process…
1. Provide vendors W-9s right away.
As a business owner, you will need to request a W9 from your vendor. This form provides their Tax ID number and correct mailing address. The best practice is to request this information before you pay them for their services. This avoids any confusion or complications that can arise from not having the correct information. (Click here to learn more about W-9s.)
2. When in doubt, issue a 1099.
There are no repercussions for issuing a 1099 to someone who doesn’t need it. For instance, if you paid someone to provide landscaping services and are unsure if they are incorporated, go ahead and send them a 1099. If they are set up as an S-Corp or C-Corp, they won’t need to use it, but they certainly will if they are a sole proprietor.
3. Organize 1099 work in your accounting software.
If you use accounting software, you’ll want to make sure you’re keeping track of how you categorize all expenses, so that you don’t miss a 1099 that should be filed. You can avoid 1099 work getting lost in the mix of all your business expenses by making sure to mark the vendor as “Needing a 1099.” This will allow you to run a report with this filter. Our other tips are to keep a separate list of where things are categorized in your accounting software, regularly update this software, and review your transactions often.
In most cases, if you’re unsure about whether you should file a 1099, you probably need to. Business owners often have questions about this process, which is why our Business Services Team is here to coach you along the way. We can be the sounding board for your questions and ensure that you are squared away for the January 31st deadline.
Want more information about when to file a 1099, the requirements, and how we can help? Click here to learn more.
Or have questions? Feel free to contact our Business Services Team. Click here for contact information. Or click here to learn more about our Business Services.
Blog by Erika Lewis – Business Services Director
Learn more about Erika and the rest of the Storen Financial team here.