Dear Reader,

1099s are due January 31st!

Did you file yours?

Do you even know if you HAVE TO?

1099s are a family of forms used by the IRS to report non-employee income. There are many, many types of 1099s, but the most common reason a business will file a 1099 is to report payment for business services. Any contractors like web designers, virtual assistants, or accountants would typically get a 1099-NEC to report this income.

While it's common for a business to hire a contractor, it's highly unlikely your business will need to file any 1099s.

Here's why:

First, if a contractor is paid with a credit card, or via PayPal, Stripe, Venmo, or other payment processor, then it is up to the company processing the payment to report the income. They do this with a 1099-K.

Second, only certain business types need a 1099-NEC. A 1099-NEC is only necessary for a sole proprietor or a single-member LLC NOT setup as an S Corp. Special exceptions are made for lawyers who always need a 1099-NEC to report payment for their services no matter their business type. You can find out a contractor's business type by asking for a W9.

Third, only contractors who are paid more than $600 in a calendar year will need a 1099-NEC.

Fourth, only US citizens or those who owe US income taxes need a 1099-NEC.

To recap, your contractor must be paid via cash, check, or ACH deposit, must be a sole proprietor for tax purposes, must be paid more than $600, AND must owe US income tax before they get a 1099-NEC from your business.

With so much business happening online, it's more and more common for businesses to accept payment via credit card or payment processor. This alone eliminates the needs for most 1099-NECs, but if you do pay contractors the "old-fashioned way" here is how Team BKA sends out 1099-NECs for clients. You can use this as a checklist for your own business:

• Make a vendor list of everyone you paid this year. Do NOT include any of your employees.

• Answer: Who did I pay for services? Cross off anyone you paid for online courses, physical goods or materials, or software.

• Answer: Who is over the $600 threshold? Cross off anyone paid less than this amount.

• Answer: How did I pay them? Keep names of anyone paid via cash, check, or ACH deposit.
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• Collect a W9 from everyone left on your list. If your contractor tells you they live overseas and don't owe US income tax, then have them sign a W8-BEN instead and keep this form on record for future years.
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• Use the information on the W9 to determine if the contractor is a sole proprietor or single-member LLC taxed as a disregarded entity. If anyone checks this box on their W9, then use the address and tax ID number on the W9 to send them a 1099-NEC.

You'll also need to file a copy of the 1099-NEC with the IRS, and some states require a copy as well.

I recommend using a tool like tax1099.com to actually fill out, file, and send any required 1099s to your contractors. It's a very affordable service (only $1.00 - $3.00 per form) and you'll know your 1099s are filled out correctly and sent to the right state and federal entities.

Head spinning? Want to avoid the hassle of 1099s next year? Here's some quick ways to improve your money systems and skip this process:

• Collect W9 (or W8-BEN) as soon as you agree to work with a new contractor. You should have this information on file even if you don’t have to file 1099s. I ask for these forms when we sign contracts.
• Get a business credit card to pay contractors, and pay the credit card off every month. This is a good way to not file 1099s and not pay payment processing fees.

Be profitable,

PS - Money Systems like these are one of the 3 Core Financial Pillars we teach in my Unstoppable Program. If your business feels stuck at 5K - 15K a month, it might not be a marketing issue. You might want to look to your Money Story instead... Click here to learn more.