For the 2024 tax year, the IRS requires businesses to use Form 1099-NEC to report nonemployee compensation. Previously, businesses used Box 7 of Form 1099-MISC for this purpose. Both forms may be needed, each with its own reporting specifications. If your business pays $600 or more to independent contractors or service providers not classified as employees, you must file Form 1099-NEC. Nonemployee compensation includes fees, commissions, prizes, awards, and payment for services.
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Filing 1099 forms can be a complex process, but some strategies can help small business owners save time, reduce costs, and ensure accurate submissions. One crucial point to note is that the due date for 1099 submissions has been tightened, giving filers only 30 days to collect, verify, and submit the necessary information. The deadline for filing Form 1099-NEC for the 2024 tax year is January 31, 2025. Platforms like TaxSeer simplify the process by providing an eFiling service that can also print and mail hard copies to recipients automatically.
Now that you have this information, let’s explore the 5 common mistakes small business owners make when filing 1099 forms—and 5 foolproof tips to ensure a smooth and accurate reporting process.
5 Common Mistakes To Avoid
Let’s look at 5 common mistakes that small business owners should avoid when reporting 1099 forms.
- Reporting Nonemployee Compensation on Form 1099-MISC
Since 2020, nonemployee compensation must be reported on Form 1099-NEC rather than Box 7 of Form 1099-MISC. Payments of $600 or more to freelancers and contractors for services must be reported on Form 1099-NEC to avoid filing errors. - Using the Wrong 1099 Form
The 1099 series includes various forms for different types of informational reporting. Be sure to choose the correct form for the type of payment you are reporting. - Skipping the TIN Match
A common mistake is failing to verify the Taxpayer Identification Number (TIN), Social Security Number (SSN), or Employer Identification Number (EIN) of your payees. Filing forms with incorrect identification numbers can result in IRS rejections and penalties. Always conduct a TIN match to confirm that the provided information matches the IRS database. - Misclassifying Employees as Independent Contractors
In an attempt to simplify tax filing or reduce taxes, some businesses misclassify employees as independent contractors. This practice can lead to serious penalties if detected by the IRS. Ensure accurate classification by issuing Form W-2 to employees and Form 1099-NEC to contractors. - Missing the Filing Deadline
The due date for filing Form 1099-NEC is January 31, 2025. Late submissions, whether through eFiling or print/mail, can result in penalties.
5 Useful Tips for Accurate 1099-NEC Reporting
- Differentiate Business and Personal Expenses
It’s crucial to distinguish between business and personal expenses:
- Business Expenses: Necessary and reasonable costs for operating your business.
- Personal Expenses: Costs unrelated to business operations.
The IRS states: “Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense that is partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.”
- Send W-2 Forms to Employees
Ensure all employees receive Form W-2 to validate their SSN or TIN information. This ensures that your 1099 forms for contractors remain accurate and distinct from employee-related reporting. - Collect W-9 Forms from Vendors Electronically
Before reporting vendor payments, obtain the vendor’s name and TIN by sending a W-9 form as soon as the vendor begins working with you. Conduct a TIN match to verify the information. If vendors delay providing the necessary information, consider withholding a portion of the payment until the information is received and validated. - Check State-Specific Reporting Guidelines
Most 1099 forms, including the 1099-NEC, fall under the Combined Federal/State Filing Program (CF/SF). However, some states have additional requirements.
- Participating States: Examples include Alabama, California, Maryland, and Wisconsin.
- Non-Participating States: Examples include Florida, New York, and Texas.
Be sure to follow your state’s specific guidelines to stay compliant.
- Use Form 1099-NEC Online
To ensure timely submission, eFile your Form 1099-NEC and mail hard copies to recipients before the deadline. Platforms like TaxSeer provide an easy, wizard-driven solution for eFiling and automated mailings.
About TaxSeer
TaxSeer is a leading IRS-authorized e-file service provider, offering advanced cloud-based solutions for filing Forms 1099 series, W-2, ACA (1095-B & 1095-C), 2290, 8849, 8809, and more.
Our platform features:
- Wizard-Driven E-Filing: Guided steps for accurate and error-free submissions.
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We’re committed to making eFiling secure, simple, and convenient. Our team is always available to support you throughout the filing process.
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