So guess who was doing her 1099s at 8pm the night of the deadline, while her dinner guests talked and laughed in the kitchen?
I got so busy sorting out 1099s for 30 clients that YUP, i forgot about my own business. ALMOST.
And pheeeeew, fortunately, since all of my own books were done (more than we can say for the cobblers’ children), it was just 30 seconds worth of button clicking & report reviewing to be sure that I was ok, no 1099s to file.
But for a second there, I was gripped with panic.
Which is not a feeling I particularly love.
That panic came late in a day that had been given over to last-minute emails, tracking down tax IDs and email addresses. I was ready to be done. Uh, I thought I /was/ done, but there I was on my computer, my glass of cider set aside, all the time thinking “YEAH, never again.”
As the dust settles on another crazy-busy January, now that I have that fine February 20/20 hindsight, I’m thinking about the list of recommendations, the instructions for how to avoid this in future. Instructions not just to myself, but to anyone who is required to send 1099s.
At some point I’ll turn this into a handy-dandy flow-chart, but until then, if you’d like to avoid another crazy January of chasing down contractor info and rushing to get your 1099s in by the deadline, here’s my advice.
Putting that February 20/20 to work
1. Are you really sure you’re employing an independent contractor? California just changed the rules last year about how you determine whether a contractor is truly independent or actually an employee. Read more about that here. The IRS’s guidance is right here.
2. If you’re sure that Person X is really an independent contractor, collect a W9 from them BEFORE YOU PAY THEM. I assume there’s some kind of conversation happening with this Person as you’re making up your mind to hire on their help. That convo should include this step. You can either collect that info using the IRS fill-in W9 form or use a service like Track1099.com like I do. That’s not an affiliate plug. I just love them.
A note about that all-caps BEFORE YOU PAY THEM. It’s amazing how much more compliant people are when it comes to paperwork if they are aware they won’t get paid until they do it. Carrots, people. Not just good for your eyes. Use ‘em.
3. While you’re at it, get Person X’s email address, too, BEFORE YOU PAY THEM. Boo, do you really want to have to snail-mail actual paper forms? Of course you’d rather just be able to email Person X’s 1099 from an app like Track1099.com. See note about compliance above. ;>
4. When it does come time to pay Person X, there are a lot of options. Some are better than others in terms of how they set up your record-keeping, generally keep things easy for you.
a) Venmo. Please do not. I know everybody loves the instant-grat of Venmo, but speaking as a person responsible for the books of several dozen small businesses just like yours, DON’T DO IT. If a top-shelf Business Witch can’t easily figure out who you paid, it’s gonna be just as hard, if not harder, for you to do so. DON’T DO IT.
b) Paypal. This is a good one. Did you know that if you pay otherwise-1099-able vendors using a credit card or Paypal, you’re off the hook for sending a 1099? Yep, a change in the rules a few years back means that Paypal and credit card processors are responsible for generating a Form 1099-K to people who meet the threshold ($20K and 200 transactions in a year). YOU OFF THE HOOK!
c) Credit/Debit card. See above. No responsibility for 1099-ing if you use this method of payment. YOU OFF THE HOOK!
d) Online Bill Pay/Zelle/Checks. These are all solid ways to pay Person X. They’re easy to keep track of, record in your accounting system attributed to Person X. You do, however, retain responsibility to 1099. YOU’RE ON DECK.
e) Gusto. Gusto’s my favorite payroll processing app. If you’re using Gusto already for payroll purposes, you can also use it to pay Contractors. And Gusto will send those 1099s for you. Included in the fee you’re already paying for payroll. YOU OFF THE HOOK!
f) Cash. Look, I know this happens, but using cash makes it SO HARD to prove that Person X’s cost was a reasonable/actual business expense. Do yourself a favor. Leave the cash in your wallet. Write a check, use online bill pay, use a credit card, use Paypal. You got plenty other options. DON’T.
If you do all these things -- make sure you have W9 & email and pay using any of the options above except Venmo/cash, it should be EASY PEASY to get your 1099s done.
Plus, dude, seriously: having a W9 for each of your contractors and paying them with almost anything other than Venmo or cash is what you need to be doing in your grown-up business. You’re no fly-by-night, seat-of-the-pants halfway venture.
Go all in on all of it. Even your contractors.