Top 5 Common Mistakes To Avoid When 1099 NEC Form Online E-Filing

As the tax period is just around the corner, business taxpayers are gearing up for a confident New Year in 2021-22. Starting with the tax season in January 2022, business taxpayers, to say the least, are curious yet nervous about the new changes to Form 1099-MISC Online and the re-introduction of Form 1099-NEC Online.


Though 1099 reporting is not exactly a smooth drive, there are ways that can help small business owners to reduce the time, money and effort it takes to get the tax forms right.

The most imperative thing to remember here is that the due date for all 1099 forms has been faster, which leaves taxpayers with just 30 days to gather the information, order the forms, validate the information, and file it online or by mail.

Since there are no special due dates dedicated to either of the filing methods, both types of files must be submitted to the IRS on or by the 1st of February 2022.

With that piece of information, let’s look at 5 common mistakes that small business owners usually make when reporting 1099 forms and 5 fool-proof methods to save time and report perfectly.

5 Common Mistakes To Avoid

Let’s look at 5 common mistakes that small business owners should avoid when reporting 1099 forms.

#1 – Reporting nonemployee compensations in Form 1099-MISC

Allowing to the IRS, starting with the tax year 2021-2022, all business taxpayers must report nonemployee compensations in Form 1099-NEC (Non-Employee Compensations), and NOT in Form 1099-MISC.

If you pay $600 or more to independent contractors or freelancers for their services, then you must report such nonemployee compensations in Form 1099-NEC starting this tax season in 2021. Order the latest 1099-NEC Forms Online the IRS here.

#2 – Not using separate 1099 Forms

You have to remember that 1099 is not just one form. 1099 includes a series of forms that are primarily used for informational filings.

#3 – Omitting TIN Match

This is another step that small business owners tend to miss when preparing their tax forms. It is absolutely essential to verify the TIN/SSN/EIN of the individual with whom you have transacted for business purposes.

If you proceed to file your forms without verifying the TIN/SSN/EIN, and if the said identification numbers turn out to be invalid, the IRS will reject your tax files and may even impose some penalty for inaccurate filings.

So, be sure to verify the TIN/EIN/SSN according to the IRS database before you enter the information in your 1099 forms. Use Tax1099’s TIN Matching tool to match your employee or vendor TINs per the IRS records.

#4 – Misclassifying your employees as nonemployee workers/ independent contractors

In a rush to just get the tax filing process out of the way and to avoid paying more taxes, some businesses choose to misclassify their employees as independent contractors.

Even though this option may seem tempting, it is a corrupt practice and your business can be heavily penalized if found that you were misclassifying your employees intentionally.

So, avoid misclassifying your employees. Rightfully send Form W-2 (for employee) and Form 1099-MISC online

#5 – Not using separate 1099 Forms

You have to remember that 1099 is not just one form. 1099 includes a series of forms that are primarily used for informational filings.

5 Useful Tips To Report Correctly

#1 – Avoid reporting personal expenses

Differentiate personal expenses and business expenses with this simple fine line.

Business Expenditure: If it is absolutely reasonable, necessary, and required for your business to operate, then such an expense can be considered as a business expense.

Personal Expenditure: If you purchase something or spend money on something that has nothing to do with your business or in no way influences your business operations, then such an expense can be considered as a personal expense.

However, the IRS provides a reasonable definition to differentiate personal versus business expenses.

The IRS states “Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

#2 – Send W-2 Forms to employees

Send all your employees Form W-2 to help them declare their name/SSN or name/TIN combinations. Use this information in your 1099 forms as necessary.

Be sure to validate the SSN/name combination against the IRS records here.

#3 – Send W-9 Forms Online to vendors

Before you starting reporting any payments you have made to vendors, make sure that you have their name/business name and TIN. Send W-9 forms at least a week in advance to get this information and conduct a quick TIN match to verify if the provided information matches the IRS records.

It is possible that many small business owners may lose touch with their vendors once a certain transaction is closed in full. Hence, it is encouraged to withhold a part of the payment until your vendor provides the required information, and process it after the information has been validated.

This way, your vendors will provide the required information within the stipulated timeframe, helping you avoid delays and unnecessary back and forth.

#4 – Check state-wise 1099 reporting guidelines

1099 forms are usually a part of the Combined Federal/State Filing Program (CF/SF). However, the newly introduced 1099-NEC form is not a part of this program (yet). So, be sure to check the requirements for Form 1099-NEC according to your state.

#5 – Use Form 1099-NEC online

When reporting nonemployee compensations (payments amounting to $600 or more), be sure to use the new 1099-NEC form. Send copy ‘of to the IRS, Copy ‘1’ to the state tax department, and Copy ‘B’ to the recipient/vendor.



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