Simplifying 1099 Filings for Small Businesses: A Step-by-Step Guide
Dear Small Business Owners,
Happy New Year!
Now that the holiday season is over, it’s time to start thinking about the next season: Tax season. We understand that managing your business comes with a host of responsibilities, and among them is the sometimes-daunting task of filing 1099 forms. We’re here for you; here’s a step-by-step list of what you need to get done.
Understanding Your 1099 Filing Needs
As a small business owner, it’s important to know when you’re required to file a 1099 form. Generally, if your business has made payments by check, cash or bank transfers totaling $600 or more to a non-employee individual or entity for services rendered during the tax year, the requirement is to file a 1099-NEC (Non-Employee Compensation) form. This includes payments to freelancers, independent contractors, and other service providers. Payments to vendors by credit card and / or pay agents (Venmo, PayPal, etc) should not be included in the total for 1099 issuance.
There are some key differences, however, when you’re paying certain types of businesses. If you’ve paid legal fees to an attorney or law firm, you’ll need to use a 1099 form and post the total in the “legal fees” box. For rent paid directly to the owner of a property, use 1099 and post the total in the “rents” box.
The Process of Filing 1099s
- Gather Information: Collect the necessary information from vendors, including their legal name, address, and taxpayer identification number (TIN) or Social Security Number (SSN). Our recommendation is that you streamline the process by requiring completed and signed W-9 forms before issuing vendor payments. Don’t wait until the end of the year.
- Compile Payments: Keep track of all payments you make to each vendor throughout the year.
- Fill Out 1099 Forms: Use the information gathered to complete the 1099 forms accurately. This includes the total amount paid and other required details.
- Submit to IRS: File the 1099 forms with the IRS by the specified deadline, typically by the end of January following the tax year. Provide copies to the respective vendors as well. Oregon requires that all 1099s issued must be reported to Oregon Department of Revenue via i-wire. You may find this at revenueonline.dor.oregon.gov under Business. Look for “File W-2s and 1099s using iWire.”
Filing 1099 forms is a crucial part of small business tax compliance. Understanding when and how to file can help you streamline your financial processes and avoid unnecessary headaches during tax season. By staying proactive, small businesses can navigate the complexities of 1099 filings with confidence and ensure smooth sailing through tax obligations.