How to Prepare Forms 1099 at Year-End
and Do So on Time
(A Guide for Small Business Owners)

For most of our clients, this is the most challenging step. The biggest hurdle for most clients is lack of bookkeeping records or reports that may provide a list needed for the Form 1099 reporting process. Since the filing deadline for most business-related Forms 1099 (such as Forms 1099-NEC and 1099-MISC) is January 31^st, we recommend the following approach:

• Download your bank and credit card transactions or look at your bank statements as early as possible. The first week of January would be great.
• Look at all payments that are in excess of $600. Note, that multiple payments to the same person or business need to be combined. The most common Form 1099-reportable item is for the performance of services (reported on the Form 1099-NEC). Examples of Form 1099-reportable services include:
  • • • –   contractors and staff you have who are not on your payroll (for example, truck-driver operators, virtual assistants, part-time help, and other contractors),
      • –   all information technology-related services,
      • –   all outside marketing and promotional help. (Note however, that if your website developer or a blog writer is located abroad and he or she did all of this work, say, in Ukraine or in the Philippines, no Form 1099 reporting will apply to them; see below for more details.)
      • –   accountants,
      • –   attorneys,
      • –   business management and consulting specialists,
      • –   plumbers, repair persons, handy persons and the like; also include businesses such as roofing and parking paving companies, glass and window repair, HVAC air conditioning and heating businesses and the others,
      • –   real estate agents, appraisers, structural and other engineers, architects, and anyone who assists with and gets paid for the exploration, development, building, sales or purchases of business assets. (Note that even though your realtor may be paid by the closing attorney or the title company, if he or she performed the services for your business, your business must send him or her a Form 1099-NEC at year-end for the commissions “paid” by the closing attorney or the title company.)
      • –   all board members of a C corporation. (Note that by federal tax law and Treasury Regulations, corporate officers who perform services for the business are considered to be employees of the business, not independent contractors, and, therefore, must receive a Form W-2 (with the corresponding income and FICA tax withholding during the year), not a Form 1099 at year-end. 
      • Corporate directors are not employees of the corporation and therefore must be provided a Form 1099). For more information on this topic, take a look at this page on the IRS’s website and in the current U.S. Treasury Regulations, under subsection (b) Corporate Officers.  

• Ignore the following types of payments or payees:
  • • • –   Merchandise (tangible goods or products),
    • • –   Utilities and communication charges (such as telephone, high-speed internet, etc.,)
    • • transportation charges (such as plane tickets, Amtrak, etc.,)
    • • –   freight charges (including common carriers such as FedEx, UPS, or the USPS),
    • • storage facilities 
    • • –   rents paid to real estate agents or rents paid to property managers only (but do include rent payments made directly to property owners.)

• If you are in the business of private money lending, you may need to send out Forms 1099-INT for interest payments in excess of $10. Read about Forms 1099-INT on the IRS’s site here. Also, Forms 1098 must be sent by lenders who receive interest payments from borrowers when the debt is secured by real estate. For additional information on Form 1098 reporting take a look at this page on the IRS’s website. 
• As stated above, officers of C or S corporations must be paid officer wages subject to income tax and FICA tax withholding, reportable on the Forms W-2 (not on Forms 1099). 
• Also note that dividends to corporate shareholders (such as from C corporations or from S corporations that used to be C corporations and that have accumulated earnings and profits from those years) are reported on the Forms 1099-DIV. For an overview of how to fill out Forms 1099-DIV, take a look here and for more information on S corporation distributions, read this article here. Note that Instructions to Schedule K-1 (Form 1120-S), page 2, state that “Schedule K-1 doesn’t show actual dividend distributions the corporation made to you. The corporation must report such amounts totaling $10 or more for the calendar year on Form 1099-DIV, Dividends and Distributions.” Instructions to Form 1099-DIV, page 4, further state that “An S corporation reports as dividends on Form 1099-DIV only distributions made during the tax year out of accumulated earnings and profits.” What does this mean? Do not report S corporation shareholder distributions on Forms 1099-DIV if the S corporation has never been a C corporation before or if it has, it has no undistributed accumulated earnings and profits from those “C corporation years”. Otherwise, you will subject S corporation income to double taxation.

Once you have the list of vendors (payees) from above, you have a potential Form 1099 reporting list. Not everyone on that list will need to be sent a Form 1099. Let’s shorten the list by turning to Step 2.