Preparing 1099s | Your Guide to Small Business Accounting for Contractor Hiring
Navigating 1099 Preparation for Small Business Accounting
Small businesses face numerous challenges. However, only a few of them are as intricate as tax filing. Many of the aspects of tax filing are confusing for business owners. Thus, they misunderstand requirements and end up tying themselves in a knot every tax season.
One of the most widely misunderstood requirements is preparing 1099s. The 1099 is a form that is crucial for reporting compensation to vendors. Small businesses have a legal obligation to send 1099 forms to independent contractors and vendors they pay more than $600 every year.
Correcting 1099 filing is crucial to avoid IRS audits, investigations, and possible penalties.
What’s the Difference Between a W-9 and a 1099?
W-9 and 1099 are two essential forms for small business accounting. However, they have different purposes.
Small businesses send a W-9 form to independent contractors to get their tax information before they resume work. The independent contractor will provide details such as their name, Taxpayer Identification Number (TIN), and address.
As a small business owner, this form will allow your business to adequately identify and classify workers either as independent contractors or employees. It will also help you avoid potential penalties for miscalculations come tax time.
On the other hand, small business owners send the 1099 to independent contractors, the IRS, and other local tax authorities at the end of the year, showing the amount paid to the contractor for their services for the year.
Understanding the distinction between both is important for accurate bookkeeping and error-free tax reporting.
What Information Is Needed for a 1099 Before Filling Out the Form?
The information needed for the 1099, for contractors for small business accounting, will come down to the type of 1099 form you’re filling out. Generally, you’ll need the name and address of the recipient and yours as the payer when creating a 1099 form.
You’ll also need the tax identification number. The TIN is the Social Security Number (SSN) for individuals and the Employer Identification Number (EIN) for businesses.
Next, you must know the total amount you paid to the recipient during the tax year and any state income tax withheld where applicable.
Specific types of 1099s like forms 1099-NEC, forms 1099-MISC, and the 1099-K will have extra information fields you may need to provide.
Providing accurate and complete information when preparing 1099s is important if you want to calculate your tax accurately, avoid penalties, and prevent any delays in the processing of the form.
How To Prepare Form 1099
Here’s how to prepare a 1099 form:
- Make a list of all independent contractors you paid more than $600 in a calendar year.
- Choose the right 1099 for each one.
- Ask the contractors to fill out and send the IRS Form W-9.
- Verify the information they provide in the W-9.
- Fill out the 1099 forms for each contractor accurately.
- File a copy with the IRS and your state’s tax authorities before March 31 if submitting online or by February 28 if you’re submitting by mail.
- Send a copy to each contractor by January 31.
- Keep a copy of each 1099 for yourself.
Properly preparing 1099s is highly beneficial for your business because it lowers the risk of audits and penalties. It also eliminates the stress of late filing and helps you avoid paying late fees.
Do Accountants Get 1099s?
Accountants will get a 1099 form if they work for you as independent contractors and earn more than $600 for the calendar year. In that scenario, you’ll need to send the accountant a 1099-NEC form (the right form for non-employee compensation).
In that case, you can send the form to their provided physical or digital address.
If the accountant is a full-time employee at your business, you don’t have to send them the 1099.
Empower Your Small Business with Numerico’s 1099 Filing Expertise
We cannot overemphasize the importance of preparing 1099s accurately for small businesses. The heat from an IRS audit and possible penalties can throw your business off course. Thus, it’s important to get help for this process if necessary.
Numerico is the go-to resource for comprehensive small business accounting and 1099 filing in Livonia, MI. Contact us today to hand over your 1099s to an experienced accountant.
