What Small Business Owners Need to Know About 1099s
When tax season rolls around, 1099 forms are one of the most common sources of confusion (and stress) for small business owners. Filing them correctly — and on time — is critical to staying compliant with IRS rules and avoiding penalties. Whether you work with independent contractors regularly or just occasionally outsource help, understanding your 1099 obligations is an essential part of good bookkeeping and tax prep.
Let’s break down who needs a 1099, how to file them, important deadlines, and common mistakes to avoid.
What Is a 1099?
A 1099 is an IRS information return used to report income paid to someone who is not your employee. The most common form small businesses deal with is Form 1099-NEC, which reports payments made to independent contractors. Independent contractors provide services to your business.
The IRS uses these forms to match income reported by contractors with what businesses say they paid — so accuracy matters.
Who Needs to Receive a 1099?
Generally, you must issue a 1099-NEC if all of the following are true:
You paid an individual, partnership, or LLC (taxed as a sole proprietor or partnership)
You paid them $600 or more during the year
Payment was for services (not goods)
Payment was made by cash, check, ACH, Zelle, or other direct means (not credit card or third-party platforms like PayPal or Stripe)
Common examples of 1099 recipients include:
Freelancers and consultants
Virtual assistants
Graphic designers and web developers
Bookkeepers and coaches
Independent contractors of all kinds
Who usually does not need a 1099:
Corporations (with limited exceptions, like attorneys)
Employees (they receive a W-2 instead)
Vendors paid exclusively via credit card or third-party processors (those payments are typically reported on a 1099-K)
How to Prepare and File 1099s
1. Collect W-9s Early
Before paying a contractor, always request Form W-9. This gives you:
Their legal name
Tax classification
Address
Taxpayer Identification Number (TIN)
Having W-9s on file before year-end saves a lot of scrambling in January.
2. Review Your Books
Accurate bookkeeping throughout the year makes 1099 prep much easier. Review:
Vendor payments
Payment methods used
Total amounts paid per contractor
This is where many errors show up if books haven’t been reconciled regularly.
3. Create and File the Forms
You can file 1099s:
Through accounting software (like QuickBooks or Xero add-ons)
Via IRS-authorized e-file providers
By working with a bookkeeper or tax professional
You’ll need to send copies to:
The contractor
The IRS
Your state tax agency (if required)
Important 1099 Deadlines
January 31 – Deadline to:
Provide 1099-NEC forms to contractors
File 1099-NEC with the IRS
Missing this deadline can result in penalties that increase the longer the delay continues.
Common 1099 Mistakes to Avoid
Even well-meaning business owners make mistakes. Here are some of the most common ones:
Not collecting W-9s before paying contractors
Misclassifying workers (contractor vs. employee)
Forgetting to issue 1099s for qualifying vendors
Including payments that shouldn’t be reported, such as credit card payments
Incorrect names or TINs, which can trigger IRS notices
Waiting until January to review contractor payments
Avoiding these mistakes starts with consistent bookkeeping and clear processes.
How 1099s Fit Into Overall Tax Prep
1099 compliance isn’t just a January task — it’s part of year-round financial management. When your books are up to date:
Contractor totals are easy to verify
Tax prep is faster and less stressful
You reduce the risk of IRS penalties
If you’re unsure whether you should issue a 1099, or you’re overwhelmed by cleanup and corrections, getting support early can save time and money.
Final Thoughts
1099s don’t have to be intimidating, but they do require attention to detail. Knowing who needs one, filing on time, and avoiding common pitfalls will keep your business compliant and make tax season much smoother.
If you want help reviewing your contractor payments or preparing 1099s correctly, this is a great time to get support before deadlines hit.
