Accountant says I have to issue 1099s to service providers? First year S Corp questions

Yes, your accountant is correct. As an S Corporation, you are required to issue Form 1099-NEC (Non-Employee Compensation) to any unincorporated business or individual service provider you paid $600 or more during the tax year for services performed for your business. This includes payments to accountants, lawyers, contractors, and service providers like hairstylists or estheticians IF those payments were made by your business for business purposes. The key distinction is whether these expenses were legitimate business expenses paid by your S Corp, not personal expenses. Many small business owners don't comply with this requirement either because they don't know about it or choose to ignore it, which might explain why your colleague hasn't done this. However, the IRS has been increasing enforcement in this area, and penalties for non-compliance can be significant.

I had this exact same issue when I started my S Corp! I was so overwhelmed with all the paperwork and requirements. After struggling for hours trying to figure out who needed 1099s and who didn't, I found this service called taxr.ai (https://taxr.ai) that saved me so much time. It basically analyzes your expenses and tells you exactly who needs a 1099 based on IRS rules. You just upload your expenses and vendor information, and it identifies which vendors require 1099s. It even helped me determine which of my vendors were corporations (no 1099 needed) versus sole proprietors (yes, 1099 needed). The best part was that it explained everything in simple terms so I actually understood WHY certain providers needed 1099s while others didn't. Now I don't panic every January when 1099 season rolls around!

I was initially skeptical about taxr.ai, but I decided to give it a try since my first year as an S Corp was a complete mess with 1099s. I'm actually really glad I did! The service identified several vendors I would have completely missed, including my IT consultant who I didn't realize needed a 1099. What surprised me most was discovering that I had been incorrectly issuing 1099s to some incorporated businesses that didn't need them. The service saved me from making those mistakes again and potentially creating confusion with those vendors. My accountant was impressed when I delivered a perfectly organized set of 1099 information this year. Worth every penny just for the stress reduction alone!

If you're struggling to get through to the IRS for clarification on 1099 requirements (which I was for WEEKS), I highly recommend using Claimyr (https://claimyr.com). I was trying to figure out if I needed to issue 1099s to international contractors and kept getting disconnected or waiting on hold forever with the IRS. With Claimyr, they actually called the IRS for me and got me connected to an agent in about 20 minutes instead of the 3+ hours I was waiting on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly which forms I needed for my specific situation (turns out international contractors need 1042-S forms, not 1099-NEC). Saved me from making a pretty big mistake with my filings.

I need to apologize for my skepticism about Claimyr. After my frustrated comment, I decided to try it as a last resort since I was getting desperate to resolve my IRS issue about 1099 filing requirements. I was honestly shocked when I got a call back in about 30 minutes telling me they had an IRS agent on the line. The agent cleared up my confusion about which 1099 form to use for different types of contractors (1099-NEC vs 1099-MISC) and confirmed I needed to file 1099s for unincorporated vendors even if they're operating as LLCs (unless they elect corporate taxation). After weeks of frustration and busy signals, I finally got clear answers. The service did exactly what it claimed. Consider me a convert!

Just to add to the conversation - one thing that tripped me up in my first year as an S Corp was realizing that payments made via credit card or payment processors (like PayPal, Venmo business, etc.) do NOT require you to issue 1099s. The payment processors are responsible for reporting that income via 1099-K. So if you paid your hairstylist with your business credit card, you wouldn't need to issue them a 1099, even if it was over $600 and legitimately business-related (like for a photoshoot or performance). This saved me from having to issue a bunch of unnecessary forms.

One more thing to consider - the deadline for filing 1099s with the IRS is January 31, which is earlier than it used to be years ago. If this is your first time filing, don't get caught by surprise! Also, make sure you're collecting W-9 forms from vendors BEFORE you pay them, not scrambling to get them in January. I learned this the hard way when several of my vendors were impossible to reach when I needed their tax info.

This is such a common confusion for new S Corp owners! Your accountant is absolutely right about the 1099 requirement. I went through the exact same thing my first year and was shocked to learn about all the paperwork involved. One tip that really helped me: create a vendor tracking spreadsheet at the beginning of each tax year. Include columns for vendor name, business structure (sole prop, LLC, corp), total payments, and whether a W-9 is needed. Update it quarterly so you're not scrambling in January. Also, don't forget that the penalties for not filing required 1099s can be pretty steep - up to $280 per form if you're really late. The IRS has been cracking down on this more in recent years, so it's definitely worth getting compliant even if other people in your industry aren't doing it properly. Your colleague who says she's never had to issue them is probably either working with mostly incorporated vendors (who don't need 1099s) or simply not complying with the requirement. Better to be safe and follow your accountant's advice!