The number of people freelancing has increased 8% in the past three years alone. So, chances are that as a business, you are working with more freelance workers today than you were three years ago. Are you prepared to file 1099s on all those new (and existing) contractors and businesses? Do you know which contractors and businesses you actually need to 1099 (hint: S-corps, C-corps, and 501c3 non-profits do NOT need 1099s).
The date to file your 1099s is January 31 and is fast approaching, so let’s get to it.
5 things you need to do to file your 1099s
Notice how each of these steps has multiple sub-steps if you haven’t gathered the necessary information over the course of the year. Decrease stress for next year’s 1099 season by putting the recommended processes in place starting today.
1. Pull vendor summary from Quickbooks.
If you don’t have a vendor summary, maybe you need to get your books in shape. Talk to one of our finance experts to evaluate the state of your books and what it will take to get them up to par!
2. Identify the people you’ve paid out more than $600 in non-employee compensation, legal fees, or rent.
Be sure this doesn’t include money for reimbursed expenses. This amount has to be exactly right (not an estimate), otherwise your contractors could be overpaying on their personal taxes.
3. Make sure you have W-9s on file for all these people and companies. You need their social, legal name, and address (email is great too if you want to avoid snail mail!).
The W-9 tells you whether you’re working with an individual or a company and provides the company’s business structure from a tax standpoint. This determines whether or not you will need to 1099 them. As I mentioned above, you do not need to send 1099s to S-corps, C-corps, or 501c3s (non-profits)!
At Paro, we don’t pay anyone unless we have a W-9 on file, which means that before we send our first payment, we ensure we have a W-9 on file. Merely asking each contractor or company to fill out a W-9 the minute they start can save you multiple painful steps next year and scary letters to you both from the IRS.
If you don’t have everyone’s W-9 on file, you will need to send them a digital version to fill out ASAP. Depending on how you pay people, a third party software you already utilize might have a secure electronic way of doing this instead!
4. Outsource W-9 outreach and follow-up.
If you don’t have your W-9s in order and have better things to do than follow up with dozens or hundreds of contractors, outsource this tedious task to one of Paro’s bookkeepers.
5. E-file your 1099s by the January 31 deadline.
When you E-file with the IRS, your filing has to be accepted by the IRS. If for whatever reason you don’t receive an acceptance notice from the IRS, you legally have to mail in your 1099s–postmarked by the January 31 deadline. If you do have to mail in your 1099s, you will need to include a Form 1096 summary report.
The penalties for late or incorrect filing are steep, which is why we’re offering to handle your 1099 filings for $5 a pop plus the bookkeeper’s time.
Reach out to email@example.com to work with one of Paro’s experienced bookkeepers!