Steps for processing annual 1099 forms and more

1. Processing 1099s
Steps for processing annual 1099s

2. The Purpose
▪ The form reports to the IRS how much the contractors were paid to make sure the
contractors pay the self-employment payroll taxes they are responsible for paying.
▪ 1099-MISC forms are used by businesses to report at least $600 in payments made in a
calendar year to an eligible entity.
▪ The most common payments reported are:
– Rent (Box 1)
– Payments to freelancers or independent contractors for services (Box 7)
– Payments to attorneys (Box 7 or Box 14)
▪ See the 2019 Instructions for Form 1099 to review all other reportable payments.

3. Collecting W9s
▪ CollectW9s actively throughout the year as new vendors are added and paid.
▪ In December of each calendar year, run a vendor transaction list to review all vendor
payments and determine if anyW9s are missing. Begin reaching out to those vendors as
early as possible before the filing deadline.
▪ Ensure all parts of the W9 form are completed and it is signed and dated.
▪ Be sure that a tax classification is entered if the entity is specified as an LLC in section 3.

4. Determining 1099 Eligibility
▪ Eligible Entity:
– Individual/sole proprietor
– Single-member LLCs
– Partnerships
– LLCs with tax classification P
– Trust/Estate
▪ Ineligible Entity:
– C Corporation (some exceptions, such as attorney payments)
– S Corporation
– LLCs with tax classificationsC or S

5. Reporting Payments to Attorneys on 1099s
▪ Box 7 – Attorney’s fees (hourly fees)
▪ Box 14 – Settlements paid or taxable damages paid
▪ Payments to corporations for legal services –The exemption from reporting payments to
corporations does not apply to payments for legal services. Payments to attorneys must
be reported in Box 7 or 14 regardless of entity status.

6. Preparing Company File for Printing 1099s
▪ Review the Company Info to make sure it is complete, including legal business name,
address and tax id number.
▪ Ensure that 1099 payment categories/boxes are mapped to the applicable accounts in the
Chart ofAccounts.
▪ Ensure that all eligible vendors have complete info in their vendor setup, including legal
name, address and tax id number.

7. Calculating amount to report
▪ Exclude payments for reimbursement of expenses since these should be tax free
payments. Only report payments for services rendered.
▪ Exclude nonreportable payments made to a vendor by credit card, debit, card gift card, or
a third-party payment network, such as PayPal.
▪ Ensure the $600 minimum payment threshold was met.

8. Reconciling Amounts Reported on 1099
▪ Run aTransaction List byVendor report for the prior calendar year.
▪ Filter the report to only include the vendors who are eligible to receive 1099.
▪ Export the report to Excel and add up all cash payments made to each vendor. Be sure to
include payments only, not bills, and exclude any nonreportable payments. Adjustments
may also need to be made to back out any reimbursed expenses that were included in the
payments.
▪ Run the 1099 Summary or Information Sheet in QuickBooks and ensure that the amounts
reported in each of the 1099 boxes ties out to the amount calculated on theTransaction
List byVendor.
▪ If the amounts do not match, possible issues may include incorrect mapping of accounts,
or reimbursable or nonreportable expenses getting included in the total.

9. Printing 1099s
▪ Print a draft of the 1099s on plain blank paper prior to printing a final copy on official
forms.
▪ Review each draft printed 1099 and ensure the following:
– Payer’s information has the company name, address and phone number clearly printed
– Both the Payer and RecipientTINs printed
– Recipient’s information has the recipient name and address clearly printed.
– The amount is reported in the correct box and is aligned correctly in the form

10. Printing 1099s

11. Printing 1096
▪ Print a draft of the 1096 on plain blank paper prior to printing a final copy on official forms.
▪ Review the draft printed 1096 and ensure the following:
– Filer’s name has the company name, address and phone number clearly printed
– Contact information for person to contact in the business regarding the 1096/1099 forms
– Employer ID orTax ID for the business
– Total number of forms should be the total number of vendors receiving a 1099 (not the total number of
pages)
– Total amount reported should be the sum of the amounts being reported across all 1099s.
– An X should be placed in the correct box to indicate the type of form being filed.
– Signature, title and date of preparer

12. Printing 1096

13. Other 1099 Forms
▪ 1099-INT – Used by businesses to report at least $10 in interest paid to any party
▪ 1099-C – Reports Cancellation of Debt to the IRS for any debt that is cancelled, forgiven
or discharged.
▪ 1099-DIV – Used by banks and other financial institutions to report dividends and other
distributions to taxpayers and the IRS.
▪ Many other variations of the 1099 form used for different reporting purposes.

14. New for 2020 1099 Forms
▪ Box 7 on the 1099-MISC will be eliminated.
▪ Non-employee compensation previously reported in Box 7 on the 1099-MISC will be
reported on a separate form 1099-NEC.