Each year we prepare hundreds of 1099s for our clients. As we’ve discussed in previous blog posts, the IRS requires businesses to file 1099s each year for specific vendors and payments.
Often, our clients are very surprised when we prepare their 1099s for the first time. Generally, we will ask about payments to vendors that they never even considered as potentially needing a 1099. Since 1099 time is almost upon us, it is a good time to ask yourself: Should I hire a professional to prepare my 1099s?
Preparing 1099s is not easy
Reviewing your accounting records to identify the vendors requiring 1099s and determining which amounts should be reported in which box is no small task. Why do we say that?
First, even the simplest guidelines for filing 1099s may not always apply. For example, many know the $600 threshold rule. You are required to file a 1099 to vendors to whom you have paid $600 or more for services. But did you also know that for some types of payments the threshold drops to $10?
Second, each year the IRS publishes new instructions. As a result, the 1099 reporting requirements change frequently, which can be frustrating. For instance, in 2019 the Instructions for Form 1099-MISC published by the IRS was 11 pages of detailed directives full of technical terms. Additionally, in July 2019, the IRS released a draft Form 1099-NEC that will replace some 1099-MISC filings beginning in 2020. A professional bookkeeper keeps abreast of all these changes so as to adapt as deftly as possible.
Hiring a professional will help
A professional bookkeeper has the skills and know-how to locate 1099 eligible vendors and payments that may not be apparent to the average business owner. Since your bookkeeper is familiar with your specific transactions, they already possess the skills to sift through hundreds or thousands of transactions and locate all the vendors that could possibly require a 1099.
Your professional bookkeeper also has access to tools that improve the 1099 filing process. These tools can ensure the information submitted on the 1099s is complete and accurate. Some of these tools can even check the vendor information against the IRS database. When you hire a professional to prepare and file your 1099s, you get all the benefits of the tools without having to spend your own time and energy into learning how to use them.
But doesn’t Gusto file my 1099s?
Many of our clients use Gusto, or a similar payroll solution, for their payroll contractor payments. We love Gusto here at Beyond!
One of the many great things about Gusto is that they will file 1099s for the subcontractors that you pay through their service. So if you’re using Gusto, does that mean your business is covered? Not necessarily. It is still a good idea to have your bookkeeper do a comprehensive review of your books to see if there are payments that are not included in Gusto’s 1099 reporting.
For example, it is common for us to find that our clients using Gusto have made payments to contractors outside of Gusto. What can result from this is that Gusto will issue an incorrect 1099. Therefore, when we do our review for 1099s, we include a review of the payments made to subcontractors in Gusto as well. This ensures that the 1099s issued from Gusto will be correct.
Most business have other types of payments that could be subject to 1099s. These kinds of expenses cannot be managed or paid through Gusto.
Another consideration is that most businesses have other types of payments that could be subject to 1099s. These include such expenses as rent, professional services, and possibly interest paid or royalties. These kinds of expenses cannot be managed or paid through Gusto.
Here at Beyond, as part of our review for 1099s, we look at all payments made that could be subject to 1099 reporting. We firmly believe that the benefits of this review are invaluable to your business and especially to your own peace of mind.
Feeling Overwhelmed?
If you find all this a bit overwhelming, you are not alone. You can spare yourself this particular headache if you hire a professional for your 1099s. Hand it off and experience the immediate relief that follows. You have enough to do with running your business without worrying about 1099s and all the work entailed in their preparation! Read more about the services we offer.
Updated 10/7/2020