#34: ALL ABOUT 1099'S

January is here, and it’s 1099 season! Whether you’re a chiropractic or wellness entrepreneur managing your own 1099 forms or outsourcing to a professional, this episode will simplify the process for you. This is what I’ll cover:

• What 1099 forms are and why they matter
• Who needs to receive a 1099 from you
• The two tricky factors: contractor business entities and payment methods
• Tactical steps for organizing your 1099s, including W9 collection, bookkeeping tips, and filing deadlines
• Tools and resources to make filing 1099s painless.

I’ll give you the practical advice and actionable tips you need to help you stay on top of this administrative task so you can head into tax season confidently!

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Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.

Transcript

What's up my entrepreneurial friend! How is January treating you so far?

I live in Central Pennsylvania, so it's been a cold one. I love it when it snows, and that part of winter is fun for me, but Pennsylvania is the land of the wintery mix. So, we get more of that rainy snowy mix which is no fun because you can't really do anything in that.

In the future my hubby and I might end up being partial snowbirds and go south for about a month in the winter. That sounds amazing right about now. I hope wherever you are you are enjoying the weather you're having, and that January has been peaceful and happy so far. When it comes to running a chiropractic or a wellness practice, January can mean lots of admin tasks. So, you are likely thinking about ten ninety nines right now and getting ready for tax season, or maybe buttoning up your bookkeeping for 2024.

Whether you do ten ninety nines yourself or you have a hired professional doing them for you Today's episode is going to be very helpful for you. I'm going to talk about what ten ninety nines are who you need to send them to and how that process works. If you just panicked a little and you're not sure if this is something you've ever done in your business? Or have someone do for you just take a deep breath and know that you can easily start understanding this now and implementing this starting this year. So, the first thing I want to talk about is what is a 1099, and why does it matter…

By definition, a 1099 form is an IRS document that's used to report payments made to non-employees. Meaning, independent contractors, freelancers, vendors etcetera. A 1099 needs to be filed for anyone you paid over six hundred dollars to for a service rent or legal services.

The most common form of 1099 is a 1099 NEC which stands for non-employee compensation. For someone you paid rent to it's going to be a different 1099 called the 1099 miscellaneous form or MISC.

For people or companies you paid for a professional service or legal services you send them the 1099 NEC which is the non-employee compensation one. That is going to be the most common one that I mentioned just a second ago.

Why it's important and why the IRS wants us to do this is because it helps the IRS track income for independent contractors that you pay.

When you have a W2 employee, you already have processed all the taxes via your payroll processing company and all of that. All those wages are already accounted for so there's no need to go back and do that again at the end of the year because that's already been done through the payroll process to pay the W2 employees. So, with the contractors the independent contractors, businesses are required by law to issue those by the end of January 31st mostly to avoid penalties and report that before tax season.

How it works is that you as the business owner issue the 1099 to someone you paid for services. It's then their responsibility to provide that 1099 document, along with their other tax documents, and report their income and pay taxes on it.

So, your job as the business owner is to file that 1099 issue that to them, their job is to report it on their taxes. With your W2 employees it's a little different where All of those taxes are already being reported and processed and filed throughout the year when you're paying them.

Okay, the next thing that we'll talk about is who needs to receive a 1099? Anyone you paid six hundred dollars or more to in the calendar year for services, not goods. So, like if you purchased products from someone, that's not somebody you would send a 1099 to. It would be for services or professional fees. You also would pay your landlord rent and that is a requirement for 1099 as well. And also, legal services. The typical examples for chiropractic businesses would be if you have a freelance massage therapist, a marketing consultant, maybe you have a cleaning service to come in and clean your clinic, maybe you pay an outsourced bookkeeper or your tax professional, and you have a landlord potentially that you paid rent to.

The tricky part as far as who you send them to is that, depending on how these contractors have their business entity set up, you might not have to issue a 1099. Another tricky part is going to be the payment method.

So, I'll walk you through these two tricky things about 1099’s so that you don't get tripped up and that you understand. The first tricky thing is the contractors. Business entity will be determined by having them fill out the W9 form. 

So, this is for the form that you collect from them, ideally, before they start doing services for you and you pay them So you have W9 form from the contractor for every single person or company that provides you a service and you pay them for it plus your landlord you need to get a w nine form.

On a W9 form, there's a space to list what entity they are. This is what tells you whether or not you issue the 1099 to them. If a business is set up as a C corporation or an S-Corp has an S-Corp tax election you do not need to send one. There is an exception to this with legal professionals, you do have to send them a 1099 no matter what.

Just a side note here: I am not a tax professional, and I am not your accountant, so this is meant to be only for educational purposes. Always consult with your tax professional about your specific situation. And if you don't have a good tax professional now is a great time to look for one before the craziness of tax season starts. Alright, the second tricky thing that I mentioned…is going to be how you paid someone and the method of payment. Depending on how you paid someone, you might not need to send them a 1099. For instance, if you used a third-party payment like a credit card or a business PayPal or Venmo, that third party company will take care of issuing these.

The one that they send is called a 1099k. Now, there have been a lot of different changes with the legal requirements around 1099k’s so be sure to talk to your tax professional about what that could mean for you and your situation. Something to keep in mind is that this applies to PayPal and Venmo accounts or third-party payment methods that are set up for business purposes, not personal. So, if you're using your personal PayPal or Venmo account, you would still have to send the 1099 but if it's a business one, they should be taking care of that.

So, to summarize the who part of paying 1099’s, you will issue a 1099 to anyone you paid over six hundred dollars for a service professional fee or rent. If they are a sole proprietor, individual, or an LLC. You will not issue a 1099 to any business set up as an S-Corp or C-Corp with the exception of legal services. You would still have to issue them a 1099.

You also do not issue a 1099 to anyone you paid via third party payment method like a credit card or a business Venmo, or PayPal. Remember, always consult with your tax professional even if you're issuing 1099’s yourself and this is pretty straightforward for you. It's good to at least speak with them and get confirmation first that you're doing things correctly. Maybe just send them a quick email with a rundown of who you're planning to pay for 1099’s and see if they agree with you.

Next, I'm going to get into tactical steps to organize your 1099’s. The first thing you want to think about is tracking payments throughout the year. You can use an accounting system like QuickBooks Online, which is what I recommend. There's also Xero, Freshbooks, and a lot of accounting softwares out there. And this enables you to track how much you're paying to vendor vendors throughout the year. So, it's really easy than at the end of the year to pull a report that lays out how much you paid to them because this total amount you're putting on the 1099 is cumulative so the entire tax year needs to be accounted for.

The report that you'll pull will be one that lists out totals paid to the vendors by company name. So that report might look different for whatever accounting software you have. But typically, it's going to do a by vendor route report and list out the total you paid to them for the year. If you're using a spreadsheet for your bookkeeping maybe keep a dedicated tab or column for 1099 eligible payments that you can track these throughout the year. It can get a little bit trickier to do stuff like this in your business with just spreadsheets so I do recommend getting an accounting software because at times like this the end of the year when you're trying to do 1099’s and you're trying to look at the health of your business, it's really helpful to be able to run a lot of different reports where you can see all of what you paid to vendors and you can compare month to month and year to year very easily.

Okay, the next tactical step is to collect W9's early. And don't panic if you haven't done that. Just keep that in mind for future years. And keep it on your radar that you always ask for a W9 before somebody starts doing work for you.

If that's not the scenario for you right now, no big deal. Just shoot emails out to whoever you paid that you might have to issue a 1099 to and if you don't hear back within a couple days, give them a call. You want to be a little bit more assertive about that since you're late in the game here but in the future years just keep that in mind that that's something you want to do every time you go to pay somebody for services or before you start paying them for services.

The W9 form, if you have not dealt with that before, is a form that provides you their tax ID, their business details, their business entity, and you want to make sure they're signing and dating that as well…

If you're a chiropractic entrepreneur, you likely won't have ton of variation with who you're paying from year to year, but you might have a few new ones each year so be sure to stay on top of tracking those and if you have a bookkeeper or an office manager that helps you with bill payments and issuing checks and things like that, then maybe mention to them that that's part of what you would like them to do.

If you have accounting software, that can actually be a great place to store the W9 documents electronically. You can save that within the vendor information for easy access. You want to make sure you also save it within your digital filing system, but it's really great to have that on hand especially if you have an outsourced bookkeeper or tax professional that's doing it for you. You have that document right in there that makes it so smooth and easy when it comes to January when they're doing that.

If you're using the same one from a prior year, you just want to be sure to reach out to that vendor and just make sure that they give you an up to date one or just let you know if any information changed on it. So, maybe they were an LLC and in that tax year they elected to be S-Corporation. You would need to know that and get a new W9 form filled out and signed for that tax year.

The third tactical step I want to talk about when it comes year 1099’s is reviewing and reconciling by December. So again, don't panic if you haven't done this but just keep it in mind for future years that in December you want to be looking at your records and ensure that all 1099 eligible payments are logged into your accounting software, and you can easily go back and do that now. And just make sure all of those vendor payments were accounted for the year. Up to the end of December. Verify that you have accurate contact information and accurate payment totals. Also make sure you don't have any duplicate vendor names in your accounting software. Sometimes you might forget that you have one vendor name already ported there and, you create a new one with like, a little bit of a different ending to it so you know maybe you have their company name, and then you have another one setup that has like LLC at the end. Sometimes when I'm cleaning up bookkeeping, I'll see that someone logged a vendor as their personal name and then there's another entry for their company name. So, you want to make sure you merge all of your contacts in your system like for that whole tax year that you're doing so that things aren't confused.

Especially if you have an outsourced professional helping you with this because you don't want them to miss anything. You want everything to be cleaned up and straightforward for January when they're issuing 1099’s.

And the fourth and last tactical step to organizing your 1099’s is to create a checklist for yourself. Include items like review contractor payments, collect W9s, verify payment thresholds, meaning verify all the people you paid over six hundred dollars to and then you can delete out of the report anybody you didn't. If you have an outsourced bookkeeper or tax pro doing these, it's still your responsibility to obtain that W9 and to make sure that it's available and up to date when January rolls around.

Planning for filing deadlines is definitely a key to staying on top of things, and something you can do to help you with this is to mark your calendar for the important dates. So, January 31st is the deadline to send 1099NECs to both contractor and the IRS. So, you can mark that on your calendar so that you have that deadline. If you're filing electronically, it's typically the same date but you want to confirm all the deadlines for that year that you're in. You can do a simple Google search and ask your tax professional. There's a different deadline for 1099MISC forms which is the one you'd send to your landlord for rent. This is going to be February 18th for the year 2025 but each year you want to just check and see if that's changed. So, you have a little bit more time with that type of 1099. But marking your calendar is huge to help you stay on top of that.

Filing methods that you can use to file 1099’s, if you are doing this yourself, there's some easy software out there to use. You can use Track1099.com, Tax1099.com, and you can use your accounting software. Usually, they will provide the opportunity to file through them. A lot of times, using your payroll processing system to manage your 1099 contractors is a great way to go. So, if you pay massage therapist you can actually pay them through your payroll processing system that you use for paying your W2 employees, you just simply issue an ACH transfer, and then that payroll processing company will usually file your 1099for you.

I use track1099.com which I really like that because it's user friendly, and they have reasonable fees so that's what I use. And it's user friendly enough that if you were learning to file these on your own in your business, I think you could easily do that And they have great tutorials as well.

If you are paper filing your 1099’s, this is only an option for you if you have fewer than ten forms to file which, if you're a smaller clinic or wellness practice, this might be the case for you. You might only have a handful you're filling out and if paper's easier for you and that's the way you want to go, by all means, you can do that. But The IRS I believe requires electronic filing if you're ten or more.

I personally think that e filing is a lot easier and quicker if something's not correct or something gets rejected. So, I really like that because like, for Track1099 for instance they will tell you that everything went through smoothly and that all the information was verified and correct. And they have a verification system as well for the tax number you're putting in whether if it's a company it's an EIN number, or if it's an individual and you're using their Social Security number they have a verification process. So that also is helpful.

Now, if you are someone who has a larger practice or business and you have a bunch of different contractors and it's just going to overwhelm you or feel kind of messy, consider outsourcing this to a bookkeeper or a tax professional. It's always good to make sure you hire somebody who communicates well and also make sure that you're communicating well. Don't always wait for them to reach out, you can be proactive about this even if you're hiring somebody to do it for you can be proactive by getting your w nines throughout the year through saving them in your bookkeeping system or sending them to that professional ahead of time.

If you'll want your bookkeeper or tax pro to handle this for you, reach out to them prior to the end of the year so that they're time to coordinate this and get on the same page with how it's going to be handled at the end of the year and when January rolls around. If you're waiting until the middle of January to reach out to somebody to file ten ninety nines don't expect them to jump on your stuff right away, I mean they're likely going to be bogged down with tons of 1099’s, so this is something you have to be proactive about.

But, again, don't panic about this. There is still time. It's only January 9th if you're listening to this when this podcast comes out so you still have time. You can go through this this episode again, take some notes, and go through your vendors who you paid.

If you're a chiropractic business or a wellness business, you likely don't have a ton of 1099’s so this is going to be a really manageable process for you..

Now, as far as expected costs that you'll incur for filing 1099’s, the software that you use can charge a variation of fees so anywhere really from three to eight dollars per filing. It just depends and if you're filing late they may tack on some extra fees.

Now, if you have a bookkeeper or a tax professional doing this for you, those fees can range anywhere from twenty five dollars to maybe forty five dollars per filing but that typically is going to include the cost of the software fees for whatever software they're using to process that.

Alright, I know that probably feels like a lot of information, but you can listen to this again. You can talk to your tax professional, or your bookkeeper so don't be overwhelmed. Just know that this is a lot easier than you think it is. A lot of people get pretty overwhelmed by 1099’s, but once you understand who you pay, and how to do it it's really straightforward.

And you likely don't have tons and tons of variation from year to year with your vendors so once you get this down, one year there's likely not going to be a ton for you to do in the following year except get those W9’s from a few new contractors that you have and make sure you have all the paperwork that you've given to your outsource professional if they're doing it for you.

So, likely if you've worked with somebody doing this for years you already have a flow and a process about this but it's really helpful even if someone's doing it for you to understand yourself how that works and how that functions within your business. Because nobody's going to care about your business more than you do. I say this all the time. And just because you hired an outsourced professional whether that's to do your bookkeeping, your taxes, your 1099’s, you should still understand what's going on in your business and stay on top of it.

It's very helpful as a business owner to understand what going on behind the scenes even if you're not the one facilitating it.

Alright, some things that you want to do to stay ahead throughout the year are just collecting those 1099’s or I'm sorry collecting the W9's early, like before you pay somebody ideally for the work that they're doing for you. And if you don't have the W9's you need right now, just reach out to them. Make sure you that if someone doing your 1099’s for you that you get everything to them that they need so that they can file things in a timely manner.

And you can file late. It's not the end of the world. But you do want to try to make sure you get them in before the end of January just so you don't have complications, and you don't have fees.

So, mark your calendar for those dates. December, mark your calendar for December 1st as a reminder that you do need to collect the W9's ahead of time . If you haven't gotten them, that’s a great time to do it. And also set up a January 1st reminder and maybe a mid-month January reminder just to alert your busy business owner wear-all-the hats brain that you need to get things in order to do this yourself or have your outsource professional do it for you.

Calendar reminders are huge for me in my business. I used to be better at remembering things, but there are way too many deadlines when it comes to being a business owner so do yourself a favor, don't leave it up to your brain, put it in your calendar, put it in whatever term you're using that would alert you. This is so helpful.

1099’s do not have to be a headache. With a little prep and organizations can be a smooth and painless process.

That is all I have for you today. Thanks for tuning in to the Financially Adjusted podcast. I am so glad you're here and you're trying to learn how to be a better business owner.

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Until next time, remember that action brings clarity, and imperfect action is better than none at all. Talk to you soon.