top of page

Why Small Business Owners Must Prioritize Gathering 1099s: A February Checklist

  • Writer: Mario Ojemudia
    Mario Ojemudia
  • Feb 12
  • 3 min read

Tax season is like a relay race—if you drop the baton (your 1099s), the whole team (your business) could stumble.


As February rolls around, many small business owners breathe a sigh of relief, thinking the January 31st deadline for issuing 1099s is behind them. But here’s the kicker: gathering and organizing your 1099s isn’t just about meeting deadlines—it’s about ensuring your business stays compliant, avoids penalties, and maintains financial clarity.


1099

What Are 1099s and Why Do They Matter?

A 1099 form is the IRS’s way of ensuring that all income—particularly non-employee compensation—is reported and taxed appropriately. If your business paid $600 or more to an independent contractor, freelancer, or vendor in the previous tax year, you’re required to issue them a 1099-NEC (Non-employee Compensation). Other forms, like the 1099-MISC, cover rents and equipment rental fees.


Failing to issue these forms can lead to:


  • IRS penalties ranging from $50 to $1,130 per form, depending on how late they’re filed.

  • Loss of tax deductions for payments not properly documented.

  • Damaged relationships with contractors who rely on these forms for their own tax filings.


Why February Is Still Critical

Even though January 31st has passed, February is a crucial time for small business owners to:


  • Reconcile Missing Forms: Ensure all contractors who should have received a 1099 have one. If not, you can still file.

  • Audit Your Records: Double-check that all payments were properly tracked and reported. Mistakes now could lead to audits later.

  • Prepare for IRS Filing Deadlines: 1099-NEC forms must be filed by January 31, using either paper or electronic filing procedures. 1099-MISC forms must be filed by February 28, if you file on paper, or March 31, if you file electronically.


Steps to Gather and Organize Your 1099s

Here’s a quick checklist to ensure you’re on track:


  1. Confirm Who Needs a 1099

    • Issue a 1099-NEC for any contractor or vendor paid $600 or more for services rendered.

    • Issue a 1099-MISC for rent, equipment rental, or prizes/awards exceeding $600.

    • Exclude payments made via credit cards or payment processors like PayPal, American Express, and other bank credit cards; these are reported on Form 1099-K by the payment platform.


  2. Collect W-9 Forms Early

    • If you haven’t already gathered W-9 forms from your vendors, now is the time. This form provides essential details like Taxpayer Identification Numbers (TINs) and tax classification.


  3. Validate Taxpayer Information

    • Use IRS TIN Matching services to verify that names and TINs match IRS records. This minimizes errors that could trigger penalties.


  4. Review Payment Records

    • Cross-check your accounting software or financial records to ensure no payments were missed. Look out for:

      • Payments made via checks or direct deposits.

      • Large one-time payments that might slip under the radar.


  5. Leverage Technology

    • Accounting platforms like QuickBooks or Xero can automate much of this process by tracking payments and generating forms electronically.


Pro Tip: Make it a policy to request W-9s before issuing any payments. Vendors are more cooperative when money is on the line.

Common Pitfalls to Avoid


  1. Skipping Legal Services: Even if your attorney operates as a corporation, you must issue them a 1099-MISC for any payments over $600.


  2. Overlooking Rent Payments: Office space rentals often require a 1099-MISC.


  3. Misclassifying Contractors as Employees: Mixing up W-2 employees with independent contractors can lead to costly misclassification penalties.


Stay Ahead of Next Year

Gathering and filing your 1099s isn’t just about compliance; it’s about building a solid financial foundation for your business. By staying organized now, you’ll save yourself from headaches—and potential penalties—down the road.


Need help managing your 1099s?

We specialize in accounting and bookkeeping services designed to provide efficiency, organization, and accuracy in your daily business operations. We can file 1099s electronically on behalf of our clients. Schedule a free consultation to discuss your goals and explore how Kim Arden Consulting can elevate your financial operations.

 
 
bottom of page