As we approach year-end, it’s time to start organizing your records for 1099 reporting. Getting ahead of this process now will save you stress in January and help ensure you meet the filing deadlines without scrambling for information at the last minute.
Understanding Your 1099 Obligations
If your business paid $600 or more during 2025 to any individual contractor, unincorporated business, or certain other service providers, you generally need to issue them a Form 1099-NEC. This includes payments to freelancers, independent contractors, consultants, attorneys, and other professionals who provided services to your business. The key distinction is that these payments must be for services, not for merchandise or inventory purchases.
You don’t need to issue 1099s to corporations in most cases, with the notable exception of attorney fees, which require a 1099-MISC regardless of whether the law firm is incorporated. Payments made through credit cards, debit cards, or third-party payment processors like PayPal or Venmo for goods and services don’t require you to issue a 1099 because those payment processors will report the income to the IRS directly on Form 1099-K.
What You Need to Do Now
Start by pulling a report from your accounting system showing all vendors you paid during 2025. Review this list carefully and identify which ones might need a 1099. For each vendor on your potential 1099 list, you need a completed Form W-9 on file. The W-9 provides their legal name, address, taxpayer identification number (either a Social Security number or Employer Identification Number), and entity classification. If you have not been using vendor tags in your bookkeeping, this process may be more difficult.
If you don’t have a current W-9 for a contractor, reach out to them now, not in January when everyone is scrambling. Simply email them requesting a completed W-9 and explain that you need it for year-end tax reporting. Most contractors are familiar with this request and should respond quickly. If a contractor refuses to provide a W-9 or the information they provide doesn’t match IRS records, you may be required to withhold backup withholding from their payments at a rate of 24 percent.
Organizing Your Records
Create a folder, either physical or digital, containing all your W-9 forms for easy access. Then generate a report showing total payments made to each contractor during the calendar year. Double-check these amounts against your bank statements and accounting records to ensure accuracy. Remember that the amounts reported on 1099 forms should include all payments made during 2025, regardless of when the work was performed.
Pay special attention to any contractors who received payments that straddle the year-end. A payment made on December 30, 2025, belongs on the 2025 Form 1099, even if the check wasn’t cashed until January 2026. It’s the payment date that matters for 1099 reporting purposes.
Important Deadlines
Form 1099-NEC must be filed with the IRS and furnished to recipients by January 31, 2026. This is earlier than some other tax deadlines, so it’s critical not to procrastinate. If you file electronically, which is required if you’re issuing 250 or more forms, you’ll need to set up an account with the IRS FIRE system in advance. For smaller volumes, paper filing is acceptable, though electronic filing is generally faster and reduces errors.
How We Can Help
We understand that 1099 preparation can feel overwhelming, especially if this is your first year handling it or if you’ve added many new contractors. Our office can assist you with the entire process, from reviewing your vendor list to determine who needs a 1099, to preparing and filing the forms on your behalf. We can also help you obtain missing W-9 forms and resolve any questions about proper classification.
The penalties for failing to file accurate 1099 forms on time can add up quickly, starting at $60 per form for late filing and increasing for intentional disregard. Taking action now protects your business from these penalties and ensures your contractors receive the tax documents they need for their own return preparation.
Please reach out if you have any questions about your 1099 obligations or if you’d like to schedule time to review your vendor list with us. We’re here to make this process as smooth as possible.
grow@cultivateconsulting.co
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
