To keep clean 1099 records, collect a signed W-9 before the first payment, record every contractor payment under the right vendor, keep payment records and review the list before year-end. Check current IRS rules for the reporting threshold and deadlines.
1Employee or contractor?
Before anything else, make sure the person is a real independent contractor. The classification depends on factors such as control, how the work is done and whether they work for others. If you are unsure, ask a tax professional, because a wrong classification can have serious costs.
2Collect a W-9 first
A W-9 gives you the contractor's legal name, tax classification and taxpayer number. Ask for it before the first payment. It is far easier than chasing it in January when the contractor is hard to reach.
3Record payments by vendor
- Set up every contractor as a vendor with correct details
- Categorize payments to the right expense account
- Record how you paid, such as check, ACH or card
- Keep invoices as support
Payments made by credit card or through some payment apps are usually reported by the payment company instead of by you. Ask your CPA how this affects your 1099s.
4Review during the year
Once a quarter, run a report of payments by vendor. Check for missing W-9s and for contractors close to the reporting threshold. Fixing issues in October is easier than in January.
5At year-end
Confirm names, addresses and taxpayer numbers, total the payments and prepare the forms by the IRS deadline. The IRS sets the threshold and due dates and can change them, so check the current instructions or confirm with your tax professional.
6Make it automatic
With clean vendor records and monthly reconciliation, year-end 1099 reporting is mostly a matter of pressing a button. Payroll and contractor support is part of how we keep your records ready.
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