The Ambitious Bookkeeper Podcast

181 ⎸ 1099 Training - Updates for 2025

• Episode 181

Share episode

Send us a text

Welcome to 1099 Season! If this is your first 1099 season, buckle up, I’m here to help! Tune in today to hear an overview of what to know about 1099s so you’re armed with the confidence to take this on, and improve your processes for next year!

In this episode you’ll hear:

  • All the types of 1099s
  • Reporting requirements, deadlines & thresholds
  • International vendors
  • And lots of tips and insights along the way!

Resources mentioned in this episode:

Thanks for listening. If this episode inspired you in some way, take a screenshot of you listening on your device and post it to your Instagram stories and tag me @ambitiousbookkeeper

For more information about the Ambitious Bookkeeper Podcast or interest in our programs or mentoring visit our resources below:

Thank you for your support of our show. If you haven’t left a review yet it’s super simple. Please go to ambitiousbookkeeper.com/podcast and leave your review.

Podcast Publishing Tools we use:

Join the next free training at ambitiousbookkeeper.com/training

Serena:

It is 1099 season. If you are a bookkeeper or an accountant, and you are in the midst of getting ready to prepare your client's 1099's, this is the episode for you. So I'm going to do a, I guess, a mini 1099 training. Although I do have a workshop available on my website and as part of the confident compliance bundle, which I'll be talking about at the end. This will get you started. So I was actually going to record a brand new 1099 workshop, but the one I did originally actually is pretty good. I just want to update a couple things so that this is basically what this podcast serves as an update and refresher and a kind of lay of the land for anyone whose first 1099 season. This is. So, today I'm going to. Talk about everything that you need to know to complete and file these essential tax forms accurately. 1099's are critical for reporting various types of payments to the IRS, not just contractor payments. And ensuring both your compliance and your client's compliance. And by the end of today's episode, you hopefully will feel confident in navigating the process. It's not scary. but it can be a little bit nerve wracking knowing that you're like preparing tax forms for peoples, businesses. Right? So this will hopefully help you avoid some common mistakes and meet these deadlines with ease. So let's get into it. I always recommend people. Do not actually rely on sessions like this when preparing s and actually reading and referring to the IRS 1099 publication, even though I've gathered all of this information that I'm going to talk about from this exact publication. It is very important for you to be familiar with the publications and how to look things up and referring to them when things are in a gray area, because I cannot possibly cover everything. And you can find that publication by just Googling irs.gov, 1099 publication. There are new publications published every year. So what I'm referencing in today's episode is pulled straight from the 20 24, 1099 publication. but at the very least, please at least read through the what's new section at the beginning of these publications each year. Even if this is not your very first year preparing, because this is where they're going to tell you about new developments around the law and how to submit things and things like that. So let's get into it. So the first, part of this podcast I'm going to talk about is just the overview of 1099 forms because there are multiple forms that you should be aware of. the 1099 N ISI gets a lot of, Publicity, I guess if you will, because that's the most common one these days with paying contractors. So you probably already know. The 1099 NEC is used to report payments of $600 or more to non-employees. That's what the NEC stands for. Non-employee compensation. Such as independent contractors, freelancers gig workers, consultants. Those types of payments. This form is commonly used for reporting service payments and is to be filed by January 31st. That's when it needs to get to the IRS and to the recipient. The 1099 miscellaneous. If you've been around in the accounting world for quite some time like myself, this is where we used to report the non-employee compensation along with a bunch of other stuff. And then it got split into its own form. So the 1099 miscellaneous still exists and it covers various miscellaneous payments, including rent. Royalties and other types of non wage compensation, that's not reported on the 1099 NEC. So, if you want to dive deeper into that. You really should go read the publication and read everything about the 1099 miscellaneous to understand what actually belongs on that. But the common ones I already referenced rent and royalties. also, if you are. if you're paying. Lawyers. for settlements and things like that, I believe that shows up on the 10 89 miscellaneous still. There's lots of other things that show up on that forum. So go get familiar with it. It's still important. the filing deadline does vary depending on the type of payment. So I'm not going to give you a deadline of that one. But I will say rent is one. if your client or you are collecting rent from someone, then you need to be issuing rent 1099. There's caveats for that. So again, go read the instructions because. Sometimes people don't get issued 1099's because of their business structure and things like that. Then there is the 1099 I N T, which stands for interest. This is a report where you report interest income of $10 or more. So if you have a client that has extended loans to other people, And they are collecting interest. You need to issue a 1099 interest form. And that goes for anything$10 or more in a year. So the threshold is much lower on this one. The next form is a 1099 div. Standing for dividends. This is where you report dividends and distributions of $10 or more. we used to issue these in corporate because some of the owners of the corporation would take dividends and they would get dividend, 1099's. 1099 R is probably not something that you're going to be dealing with with small businesses, but I'll just brush over it real quick. It's used to report distributions from pensions, annuities, retirement, or profit sharing plans, IRAs or insurance contracts. So unless you are doing bookkeeping for. some sort of. Financial. Place. You probably won't be dealing with these. the next form is 1099 B. This is where you report proceeds from broker or Barter exchange transactions commonly associated with the sale of stocks or mutual funds. So this is another one where depending on the type of business you're working for, I know in corporate, we issued a couple of these because of. stock sales. And the109999, K. This is one where you don't have to worry about issuing this, but it's important to understand what a 1099 K is because it kind of overlaps with. companies that you may have previously issued a 1099 N E C four. And this covers payment card and third-party network transactions, including platforms like PayPal. Or Stripe if payments exceed. I think this year it's 2,500, they've gone back and forth on stuff. but since you're not actually issuing that form, It's not as crucial for you to know that threshold where people seem to get confused with this particular one, is that. I've seen bookkeepers talking about, oh, well, since the threshold for the 1099 K is 2,500 last year. It was 10,000. since the threshold is that, then I should be reporting anything below that threshold. And the answer is absolutely do not do that. Because what happens is you're only seeing a sliver of the transactions that, that client has maybe B will be getting through PayPal or Stripe. And so you're not actually responsible for filing any of those. or reporting any of that. So if it was paid on PayPal business, credit card, or even a debit card, because the debit cards still go through the clearing house, like a credit card. anything with the visa, MasterCard, all of those symbols on it. You do not. Record those on the 1099 that you're going to be issuing because that's going to be handled by the third party network. All right. I'm going to probably get into that a little bit more. Later. but that's kind of the overall. And then the last 1099 is the 1099 C. And this is reporting cancellation of debt, exceeding $600 such as forgiving credit card balances and discharge student loans. This is another area where I've seen not great advice float around in previous years where. People have talked about. Basically when you get ghosted on payment, like a client, doesn't pay you and you have all of this outstanding AR and you've written it off. People have talked about just issuing a 1099 C for that. And I would not recommend doing that. so that's just a little, little note there. Again, in most small businesses, you shouldn't be dealing with. Actual cancellation of debt, forgiving credit card balance. This is totally different than it. Accounts receivable. So you will probably not be issuing a 1099 C in the regular course of small business. Okay. So each of those serve a specific purpose. If you think you might be required to file one or two of these, again, go read the instructions for those individual forums, to make sure. So now let's talk about preparing the 1099 forms. Before preparing 1099's. There's some crucial steps that we're going to dive into a little more in detail first and foremost, it's always better to get ahead of this throughout the year. Obviously we are already in January at the time of this recording. so take this as a piece of advice for this coming year, working with your clients throughout the year and keeping an eye on contractors. And helping them collect ahead of time is going to be a game changer. But if, again, this is your first 10, 8, 9 season. Maybe you overlooked that and didn't really think about it. I'm sure you'll do better next year. Actually. I know you will, because you've now are listening to this training. and you're not alone. We've all been there. Okay. So we actually bake this into our month end process for the bookkeeper to stay on top of collecting W-9s. Or alerting clients when we need, when a new contractor is being paid via the certain avenues that require a 1099. So your first step is to identify the recipients that are going to need 1099. So you get to determine who needs a 1099. Typically those are contractors vendors or others that are paid more than $600 during the year, not through a payment processor. So I'm going to go through those details once again. So that's anything paid via ACH, PayPal, friends, and family. Venmo personal Zelle. Check cash or wire. What does not get a 1099 form for the client? Is anything paid via a debit card? Credit card, PayPal business, Venmo business go cardless. I know a lot of us use GoCardless as a payment processor and while they are processing, ACH is they actually are acting as a third party network. So they are issuing 1099's. Or any other clearing house? So, if you are unsure about your payment processor or the client's payment processors, you should be able to check with that payment processor to see if there there'll be issuing a 1099 K every time that I've had a question about this, I've been able to go to. The payment processors website find on the FAQ is about 1099's and get my answer. If you don't get it that easily, you can always call them or open a ticket or a help document situation. So again, even if the vendor is under the 1099 K reporting threshold, it doesn't mean they aren't under the threshold in total for that payment processor. So that misconception that I was talking about. Number two, you want to collect their information. So this is where gathering W-9 forms.. With their taxpayer identifications and legal names comes into play. And when you gather that W-9 one thing that we've had happen, a timer too, is a vendor is resistant to giving us a W-9 because they. Are certain They won't be issued a 1099. And while that may be true because of their business structure. It was the business owner's responsibility to still collect a W-9 to be sure and get their signature on it. So that's one of those things that you may get some pushback from some people that don't want to give one because, oh, I'm an S-corp or. I'm a C Corp and I don't get 1099's. Great. I just need that documented with your signature on it on a form W-9, because that's, what's going to get audited. If it comes to that. Okay. and then you want to then review all the payment records. This is where you're going to cross check all the amounts paid against your reporting thresholds. If you use zero, we have a great feature where you can check off which GL accounts you want to run through the 1099 report. And, we're able to see also how things are paid. For the most part. and sometimes there's still question marks like the debit card. Sometimes that doesn't look different on a bank statement. So that's when it's been really helpful to have access to our client's actual bank accounts. So then we can drill into those transactions and see. Without asking the client. Sometimes it does come to asking the client, but it's really great when we can drill into those transactions and see how it was paid. Was it paid via a debit card or an ACH? and then we'll know. Whether it belongs on that 1099. Now let's talk about completing the 1099 form. this is something that. If you've been around a while, you've probably actually completed these maybe handwritten or through a typewriter or a computer and had to like align things. Those days are pretty much gone. there is now a, an e-filing requirement for any company that has over 10, 1099's. I believe that's the limit. I would highly recommend just using a service to file these. Even if you just have a handful for each client, this will allow you to do a couple of things. When you use a service, you can actually do a tin match, which before you actually file the 1099's, you can load all the information in for the, the vendors and make sure that you have the correct. tin and then you won't have issues later on with those 1099's. And then also it gives you one place to look, to see which ones have been accepted. You can download copies, you can provide people, portal, access, all that good stuff, highly recommend. I'll be talking about options for that in a moment. But completing the 1099 form again, it's pretty straightforward, but you do want to look at that form specific instructions. just to make sure you're doing it correctly, or the IRS publication for 1099's. and then you're ready to file. one step in between is if you are doing this on behalf of a client, you want to have a layer of review for the client. So typically what we do is we get everything prepped. Usually there's stuff in between where it's like, okay, we're missing a W-9. So we don't have their tax ID. So there's a little bit of back and forth initially with the client. And so we'll send them the spreadsheet of these are all the 1099's that are supposed to be issued this year. This is the information we're missing from each of these, but please also like, as you're providing that information, collecting W-9s. please also verify the information that's on here. Cause ultimately it's up to the business. sometimes mistakes happen and things get keyed in incorrectly or it's the wrong name or whatever. So, but it is really also important for the business owner to understand how many forms they're filing and what are the totals. So that's a crucial step in between completing them and filing them. I would recommend if you have not started diving into 1099's yet for your clients. Now is your time. Carve-out. The next day or two to start running these reports and see what kind of information you're missing, because I almost can an hundred percent guarantee that you're missing some piece of information. That's going to prevent you from being able to file. plus you need to keep your clients aware of what's being filed for them. that's my recommendation on that. With my, confident compliance bundle. I do give you email templates that we send the client. letting them know that we're filing 1099's and what we're still missing and reminder emails and all that stuff. It is quite the undertaking. I'm not going to lie. And a lot of people, this is probably going to come up. A lot of people, charge extra for each form. So it's like a flat fee for each form that's filed. you can charge that way for us. Our client base in particular, mostly uses PayPal and Stripe for paying. they're contractors. So we have a pretty minimal amount of 1099's for the most part. In general for our clients. There's like, there's a couple of clients that tend to have more, but we've decided to include this in our monthly fee for the client. So they are not charged more at year end, but that's not to say that that's the correct way for you and your business. If you are working with. a client that has lots of contractors and there's a lot more back and forth and collecting W-9s. Then by all means charge for that. Year-end don't just include it because this is a lot of extra work at your end when everything also is just a lot. So keep that in mind. so once you're ready to file. Like I said, there are e-filing requirements now for the 1099's. If you have more than 10, you are required to e-file. honestly, e-filing is so easy. There is really no reason to do them by paper. That would take way more effort to mail and print and all the things. So there's, A couple options you have for e-filing. you can use tax 1099. That's what we've used in the past. you can also do lots of other tax forms through there, like W2's and things like that. The usability on that site, I'm not going to lie is not that user-friendly. And so we've decided this year to switch over to track 1099. Both of these integrate with, zero. So when you're in zero running the reports for 1099's, you can, after you've reviewed everything, you can click a button and say, send to tax 1099 or track 1099. And everything should be loaded in for you. It makes it really, really easy. And I'm sure that they integrate with QuickBooks as well. your other options are e-file for number four, biz B I Z I'll link all of these in the show notes as well. and then you can also use the IRS fire system, which is the official IRS e-filing portal. but I think it's a more manual process. so my top two recommendations are track 1099 and tax 1099. Now if you end up having to make corrections, which is almost an inevitable for every filing season that I've been through. Because mistakes happen. So you'll identify the error, determine whether it's missing a T I N, which is the taxpayer identification number. Whether the amount is incorrect or the recipient information is wrong. then you can file a corrected return if you've already issued these to the IRS and the recipients. And in that case, you will check a box on the new form and indicate that it's corrected. And this can be done through these e-filing softwares as well. And then you'll submit it. the corrected form with a new form, 10 96 to the IRS, the 10 96 is a summary of all the 1099's that you're filing. So that one is usually due later than January 31st. So I would recommend, actually waiting to file that until after January 31st. If your software allows it that way, you don't have to file a corrected 10 96 as well as a 1099. so then you want to provide your recipients with the copies. Those are all the vendors that are getting 1099's. in most cases, actually believe in all cases, the recipients of every type of 1099 must receive them by January 31st. And include all the required information. with those. E-filing softwares. You can issue them electronically. People just have to opt into that. but that's the option that we use. we try not to, we don't mail usually any of them, but you can also select that as an option when you're filing the forms. If you don't receive email addresses for all of those vendors. All right. So that was a lot, there's two more sections. Things that I want to talk about basically. Number one is backup withholding. So if someone does not provide a valid T I N. when the IRS notifies you of mismatched information, we're actually required to withhold 24% of the payments and report those amounts with hold on the recipient's 1099. I've never actually done backup withholding, but I have had to threaten it quite a few times. So, this is what comes into play. When you have a vendor that's resistant to providing a W-9. And basically is saying they don't want to report anything. So then it's actually up to your client and you to help them. Through this, obviously, to withhold payments until they provided tin. so this is where. The education comes in with your clients of like, honestly, I recommend talking about 1099's when you're onboarding a client, ask them if they have affiliates or contractors or people that they pay for services through check ACH wire cash, any of that. And then go through the 1099 requirements with them on a high level and let them know, okay. Going forward, it's going to make everyone's life a lot easier if you don't actually ever issue a payment until someone gives you a W-9. And then it also weeds out contractors. You wouldn't want to work with, because if someone doesn't want to fill out a tax form because they don't want to report the income, then you get to make a decision on whether or not they hold the same core values as you. And if you want to work with them before you ever pay them, So. Always. You know, the backup withholding is a big deal. that's part of why we also, as soon as we start prepping for 1099's, and we have the W-9 information for people. We'll run 10 matches before we start filing the returns. that way we can get ahead of getting their correct information before it's too late. So around this time of the year, beginning of January, My team is running 1099 reports to see what information we're missing. And about mid January, I'll be running 10 match reports. putting all that information into our 1099 software and running those reports. Yes, it does cost a little bit of money, but I believe it's worth it on the backend. Now, the last part that I want to talk about is international vendors. So this is kind of Different than a 1099, but it does come into play. If your clients are working with people in Canada or England or wherever and paying them through a wire or an ACH again, not through PayPal. And this is when you're going to instead of a W-9, you're going to ask them for a w eight form. And you will want to have your client and you you'll be keeping this on behalf of your client in your client's file. Completed form W-8 BEN. Or BEN-E from the vendor. And this form is what certifies their foreign status. And then there's another step to this. So it's not, it doesn't just end at collecting the form and filing it away. You actually need to, Verify tax treaty benefits. So. every country that I've come across so far has had a tax treaty in this regard. but I haven't worked with vendors worldwide, so you have to do this research on each individual case. To make sure that you're not supposed to be withholding, backup, withholding. Which could be up to 30% for international. So if we don't have a tax treaty with that country, We should be doing backup, withholding. And then if you do backup withholding, there's another form that needs to be filed. It's a whole thing. So if you know, you have clients who work with international vendors that they're paying via wire. Or ACH or anything like that, not using a third-party payment system. Then, you need to do the work and do this research. So, I would love to be able to provide every single scenario for everybody, but these sessions and, podcast episodes, this is like the most detailed podcast episode I've done in a really long time. but these are really meant make you aware of the things that you might come across that way in case you do come across it, you don't just dismiss it as irrelevant. you'll know, you'll be like, oh, I remember Serino talking about international vendors and this other form. So I'm going to go do my research. And that is what is required of our profession. Don't get lazy. Learn how to research, use chat GPT for the research initially. But I still do think that you need to read the form instructions to get really comfortable with things. Especially if you're the one signing off on it. All right. So, I'm going to try to link everything that I talked about in the show notes. Like the IRS publication, the different softwares I talked about. but I hope this was really helpful for you in just kind of being aware of what you need to be looking at for 1099's. hopefully in 2025, you'll get ahead of the W-9 game and work that into your process. Hint, hint. And if you're looking for something that will help you with delivering a year-end package to your clients and their tax pros. I go over 1099's again. and I talk about sales tax. I have something called the confident compliance bundle. Inside of that, I show you the year-end tax package that we prepped for all of our clients that they can just hand off to their CPA for taxes. how we handle 1099's. I give you email templates and the SLPs, which are standard operating procedures. So you can basically take our process and implement it in your own firm. And then I also provide you with a Canva template for a financial statement, basically presentation a year at. financial results presentation for your clients. This is something that we do for our clients. It may be something that you want to implement in the future. I wouldn't really worry about implementing something like that this season, if you are overwhelmed already with 1099's, but maybe in the future, you can add it in. But it basically is a visual format. Of our client's financial results and I record a loom video or some of them I do on a zoom call, so they can ask questions and I give all those templates to you, a script and all that good stuff. so to grab the confident compliance bundle, you can head to ambitious bookkeeper.com/confident. The link is also in the show notes. It is only available until January 31st and then The product. Goes into hibernation for the rest of the year. It's not available for sale. So this is really something you want to act on. Now, if you feel like you need a little bit of extra support with your end. again, it's ambitious bookkeeper.com/confident, and it will also be linked in the show notes. All right. Thank you so much for bearing with me through this really meaty episode. normally my solo episodes are like super short and sweet and to the point, but this one you might need to go back and forth A couple of times, take some notes. and I'll see you in the next episode.

Podcasts we love

Check out these other fine podcasts recommended by us, not an algorithm.

Accounting High Artwork

Accounting High

Accounting High