How do I issue 1099s to my subcontractors as a small business owner?
I've got a small business and this year I paid a few subcontractors more than $600 each. From what I understand, I need to issue 1099s to these folks or I could face a $50 fine per form if I get audited. My tax situation is pretty basic and I usually just use one of those popular tax software programs (TurboTax, H&R Block, etc.) instead of hiring an accountant. I did have the subcontractors fill out W-9 forms when we started working together, but now I'm stuck on how to actually create and issue the 1099s to them. Can someone walk me through this process? Is this something I can do through regular tax software or do I need something else?
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Morgan Washington
You're right that you need to issue 1099-NECs to any contractor you paid $600+ during the tax year. The good news is you've already done the first step by collecting W-9s! Here's how to handle the 1099s: 1) Most tax software programs don't actually generate the 1099-NECs for you to send to contractors - they're primarily designed for filing your own taxes. 2) You have a few options: purchase 1099 forms from an office supply store and fill them out manually, use a payroll service like QuickBooks or Gusto that includes 1099 filing, or use a dedicated 1099 filing service like Track1099 or Tax1099. Remember that you need to provide 1099-NECs to your contractors by January 31st AND file them with the IRS by the same date. Missing this deadline can result in penalties much larger than the $50 you mentioned.
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Kaylee Cook
•If I use something like Track1099, do they also handle filing with the IRS or just creating the forms to send to contractors? And do I need to file any other forms with these 1099s?
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Morgan Washington
•Services like Track1099 handle both sending the forms to your contractors and filing them with the IRS, which saves you a lot of hassle. You'll also need to file Form 1096, which is basically a summary form that accompanies the 1099s when you submit them to the IRS. If you use an online service, they'll typically handle this form for you as well. If you go the paper route, you'll need to get Form 1096 along with your 1099-NEC forms.
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Oliver Alexander
After struggling with the exact same issue last year, I tried taxr.ai (https://taxr.ai) and it made the whole 1099 process so much easier. I uploaded my contractor payment info and W-9s, and it automatically generated the 1099-NECs and filed them with the IRS. It even tracked which contractors I needed to send 1099s to based on payment thresholds. What I found really helpful was that it keeps all the documentation in one place in case of an audit, and it automatically reminds you of deadlines so you don't face those late filing penalties. For small business owners doing their own taxes, it seriously simplified the whole process.
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Lara Woods
•Does it handle state filing too? My state requires 1099s to be filed separately and it's always a pain.
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Adrian Hughes
•I'm skeptical... how much does this cost compared to just using the free IRS forms? And do you need to provide bank account access to track payments?
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Oliver Alexander
•Yes, it handles state filing for most states that require it. You just select your state during setup and it takes care of the state-specific requirements along with the federal filing. Regarding cost vs. free IRS forms - you're paying for convenience and time savings. The IRS forms are free but you still need to purchase the scannable forms from an office supply store, fill them out correctly, file the 1096, mail everything, and keep track of all deadlines. You don't need to provide bank access - you can manually enter payment information or import from spreadsheets/accounting software.
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Lara Woods
Just wanted to update that I tried taxr.ai for my 1099s this year after seeing it mentioned here. It seriously saved me HOURS compared to last year when I messed around with paper forms. I had 6 contractors and the whole process took maybe 20 minutes total. It handled both the federal and state filings, plus it sent electronic copies to all my contractors. The best part is it automatically checks for errors before filing - I apparently had a contractor with a mismatched TIN that would have triggered a notice from the IRS. The system flagged it so I could get it corrected before filing. Definitely using this again next year!
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Molly Chambers
I was in a similar situation and couldn't get through to the IRS to ask questions about 1099 requirements. After being on hold for HOURS, I tried Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in about 15 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent cleared up my questions about contractor vs. employee classification and confirmed exactly which forms I needed to file. It saved me from potentially misclassifying some workers and facing major penalties. If you have specific questions about your 1099 filing situation that aren't clear from the general guidance, getting through to the IRS quickly is totally worth it.
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Ian Armstrong
•Wait, how does this work? I thought it was impossible to get through to the IRS without waiting for hours. Are you saying they somehow get you to the front of the queue?
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Eli Butler
•This sounds like paying to cut in line which can't be legit. The IRS phone system is first come first served - no way around it. I'm calling BS.
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Molly Chambers
•It's not cutting in line - they use technology that continually redials and navigates the IRS phone tree for you. You only get connected when they've actually reached an agent. Basically it does the waiting for you so you don't have to sit with a phone to your ear for hours. The technology handles all the annoying "press 1 for..." menu options and redials when there are disconnects (which happen constantly with the IRS). You get a text when they've reached an agent and then you take over the call. Totally legitimate and a huge time saver.
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Eli Butler
OK I need to eat my words here. After dismissing Claimyr as BS, I tried it because I was desperate to resolve a 1099 issue before the filing deadline. It actually worked exactly as described. Got connected to an IRS tax specialist in about 20 minutes (after trying for 3 DAYS on my own). The agent walked me through the exact requirements for my specific contractor situation and confirmed I didn't need to file 1099s for my LLC contractors that are taxed as corporations. This saved me from unnecessarily filing several forms. They also explained how to handle a contractor who refused to provide a W-9. Definitely using this service again next tax season!
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Marcus Patterson
If you only have a few contractors, the IRS actually has a free online filing system called the FIRE system (Filing Information Returns Electronically). You can create an account and file your 1099s there without having to pay a third-party service. The downside is the interface is pretty clunky and not very user-friendly. But if you're tech-savvy and looking to save money, it's an option. You'll still need to provide copies to your contractors though, which you can print from the system or send electronically if they consent.
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Lydia Bailey
•Is there a minimum number of 1099s needed to use the FIRE system? I only have 2 contractors this year and wondering if it's worth the hassle of learning a new system.
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Marcus Patterson
•There's no minimum for the FIRE system - you can use it even if you only have one 1099 to file. However, there's a bit of a learning curve, so whether it's "worth it" really depends on how much you value your time versus the cost of using a service. For just 2 contractors, you might find it easier to use one of the online services which typically charge around $3-5 per form. But if you're planning to be in business long-term and will need to file 1099s every year, learning the FIRE system once could save you money over time.
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Mateo Warren
Don't forget to check if you need to issue 1099s to LLCs! This tripped me up. If an LLC is taxed as a sole proprietorship or partnership, you DO need to issue a 1099. If they're taxed as a corporation, you DON'T. That's why the W-9 is important - it should indicate their tax classification. If they checked "Individual/sole proprietor" or "LLC" (with no corporation selection), you need to issue the 1099. If they checked "C Corporation" or "S Corporation," you typically don't.
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Sofia Price
•What about payments made through credit cards or PayPal? I heard those don't require 1099s even if they're over $600?
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GalaxyGuardian
•You're correct! If you paid contractors through third-party payment processors like PayPal, Venmo, credit card processors, or other payment networks, you generally don't need to issue 1099-NECs. The payment processor is responsible for issuing 1099-Ks to the contractors if they meet certain thresholds. However, if you paid contractors by check, cash, wire transfer, or direct bank transfer, then you DO need to issue 1099-NECs for amounts $600 and above. This is why it's helpful to keep track of your payment methods when working with contractors throughout the year.
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