Episode 39: How to Handle 1099s Without Losing Your Mind

  Welcome to CreativeMind Smart Money, the podcast where creativity and business smarts collide. I’m your host, Samantha Eck, bookkeeper, business coach, and your go to guide for building the creative business of your dreams. Whether it’s mastering your money, streamlining your systems, or growing your business, I’m here to share insights that empower you to thrive.

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  You are listening to the Creative Minds Smart Money Podcast, and on today’s episode, we’re covering a much needed topic, 1099’s. This is an episode you’re gonna wanna keep in the back of your pocket for when next year rolls around, because January is. Always counts when it comes to 1099’s and nobody can ever figure out who they’re owed to.

So today I am gonna give you the facts as straight as possible, as well as a completely free resource with no strings attached, that you can utilize next year to file your 1099’s with ease. So first of all. 1099s are necessity for any business owner who uses any type of service provider, contractor.

You rent space, you pay royalties. There’s so many different aspects to it that. We just kind of have to go over all of them today. So according to the IRS businesses need to file a 1099-NEC, so it’s NEC for each person to whom you have paid at least $600 in services performed by someone who’s not your employee.

So if you hire me. If you hire a social media manager that is someone who’s been paid $600. Now there are exceptions to that and I will get to it, so, but let’s kind of just talk about who we need to pay and payments to an attorney, cash payments for fish, things like that. But. Very specifically, you do not owe 1099 to people you pay product like you spend and buy products from.

So if you buy it from someone on faire, you buy from a local vendor, something like that. You do not owe them a 1099. It is only for those who do services. And this is specifically because the IRS wants to see what people are being paid. And that sounds a little bit scary. There is another 1099 you need to be aware of.

It is called the 1099 MISC. It is required for each person that you’ve paid throughout the year, at least $10 in royalties. And royalties will include things like if you are a bookish goods vendor and you sell Sarah J Maas products, that is a royalty product. So if you pay her. Publishing company royalties.

Technically you would need to send them a 1099. It also pertains to rents any prizes, other income bartering like we had talked about, things like that. Those are also on a 1099 MISC. There are very common misconceptions about who needs to file a 1099.

So I wanna be as plain and simple for you in this moment right now. like I mentioned, I will be giving you a free resource that you can utilize year after year. Obviously, rules are changing and I’ll try and keep it up to date, but. The first thing you need to ask yourself when you’re thinking of any service provider and who you need to pay is, did you pay them $600 or more during the tax year?

So for example, me, my packages start at $500. So if we work together for at least two months, you’re already going to owe me a 1099. But the next question you need to ask yourself is how you pay them, because depending on certain rules. You might not be owing them a 1099. It might be their payment processor.

It might be someone else that owes them a 1099. So you have to kind of watch out for that. So this is where the misconception comes in, where everybody claims that they just need to send a 1099 to anybody they’ve worked with that has services, but it’s just not true. So who needs to file a 1099? Of course, again, it is.

Anybody that is working with a service provider, that they pay them over $600. So common mistakes that I see and ways to make this whole process easier, first of all. You need to get a W9 from every service provider regardless of their classification, their business classification, regardless of how you pay them, just to make sure you have your butt covered.

Essentially, this W9 is going to be on your records for your bookkeeper or whoever to know how to file them. Now if you are like, okay, I don’t want to send it because this person always sends me 1099, even though they don’t have to, I understand your situation. Please explain that to the person you’re working with or to their CPA or whatever, just to make them understand.

But if at all possible, always send a W9 or always get a W9 before any payments are made. This is so important because if, for example you pay someone $600, they do require a 1099 and you don’t have their W9, you could be at risk for paying whatever taxes they owe. So it’s so, so, so important.

I. The second thing is incorrect information. So whether they have an incorrect EIN or tax identification number, or they have an incorrect address, you need to always check in on that and make sure that those are correct. A lot of places will help you e-file nowadays, so it’s just really easy to get these done.

It’s just a matter of making sure you have your information correct and then. Of course, everyone does assume that every third party handles 1099’s, but not every third party does. So before we get into all of the like nitty gritty of. Who needs to pay, whether or not we wanna ask ourselves when and how do we file.

So as of January 1st, every year your 1099’s should be open. They don’t open for e-file, I believe, until like halfway through the month. So if you wanna e-file them, you kind of have to wait, but you can already get them prepped and in the system to e-file the day it opens. Better early than never, I would say in this case.

As of the first, you should have everything that you need to file. Get all of your information upfront. Make sure you have everything that you need to file. Go to a website, whether that’s QuickBooks Track 1099. Tax 1099, and if this is too overwhelming for you, feel like, I don’t know who needs a 1099, I can’t handle it.

That’s exactly what your bookkeeper or your CPA is there for. A lot of people do love to file their 1099’s themselves, and some people actually miss 1099’s for certain people, but it’s completely up to you who, and why you wanna do that.

Once you file, they will send either a mail out notification to whoever you owe to, or they will send. An e-file email and then they’ll also e-file on be on your behalf to the IRS. So there’s really not a lot that you have to do, but you need to have all the information upfront. Sometimes it can be a little bit difficult to like figure out where things go, which is why working with a bookkeeper or working with someone else who knows kind of what those forms look like can help.

But sometimes they can get a little bit complicated. 1099’s are due by January 31st. I believe the exception is miscellaneous ones. I think miscellaneous ones are due by the our March because I think rent ones are different. I’m not a hundred percent sure on that. Don’t quote me. 1099’s themselves, I would always just file them by January 31st entirely, because that is what I’ve known and always been told, is the deadline, if you don’t file by the 31st, you can actually get penalized.

So for one thing, if you file your taxes and you. Say that you had to pay services, but you didn’t send out 1099’s, they will penalize you, and you can pay large amounts of fees. Everybody’s like, oh, no, they’re not, they’re not that bad that you can pay fees. They may audit you because they may not understand, and if you don’t have correct information, or you don’t have SSNs or EINs or TIN numbers. They can actually, like I said, send you a notice and then charge you for the taxes that are owed by this person. So you wanna make sure that you are all up to date there. now that we’ve kind of gone over all of the nitty gritty, I really wanna talk about who needs a 1099 and why. And like I said, I’m giving you guys a free resource.

I have a 1099 decision tree that I came up with in Canva that is completely free. I will post it in the show notes. You can hold onto it for next year so that you can take a look at this. Again, like I said, I will look at the new rules next year and try and update this. So again, we wanna ask ourselves if we paid them $600.

During the tax year, so first of all, compile a list of people you’ve paid for services. This includes social media managers. This includes people who have painted your house. That is a service. It is not a product that includes people like plumbers, that includes all those people. Compile that list of people who you’ve paid $600 or more during the tax year.

You should start doing this in November of the year prior, so this year, in 2025, as of November, compile that list of people you’ve paid $600 or more to during the tax year that have done a service, start getting their W9s. If you don’t already have them and getting their information, you’re ready.

Come January, because if you wait until January, I will tell you right now, there are so many people that are doing. Everything else that you probably won’t get their W9 in time. So bug them until you get their W9 and then you can go ahead and do that. Now the next question you need to ask yourself is how much did you pay them?

So how much did you pay them? You have four different ways usually that you pay someone. So you have credit cards and debit cards. First of all, if they pay through a credit or debit card, and this is like a direct payment through a credit or debit card. This is not through a payment processor. This is not through any sort of other thing.

This is a direct payment into your bank with a credit or debit card. So it could be like a Chase payment processor, it could be something like that. If they pay you directly with a CH credit card or debit card, there’s no 1099 needed. Whoever the credit card company is, whether that’s Amex or Capital One or whatever, will.

Owe them a 1099 K. So you do not need to send them a 1099 if you send them a 1099 when it is not needed. I just want you to be aware of what’s going on. If you send someone a 1099 and it’s not needed, they now have to double report income because whatever 1099 you receive, you have to report. If you don’t report it on your taxes, the IRS could.

Flag you for an audit. You’re much more likely to get flagged for an audit actually, because they’ve already received that document saying that you earned that income and you not recording that on your taxes to them is like, , why are you trying to hide income from us? So if you do not owe someone a 1099, do not send it.

And if you are unsure, make sure you get the actual feedback you need before you send them. I will be honest, 110% honest with you, I got to this year that I did not need and. It can, it can hurt someone because they will owe more taxes than they need to. So the next thing you also wanna think about is payment platforms.

So if they paid you through Stripe, they paid you through Square, they paid you through. HoneyBook, they paid you through Dubsado, whatever those payment platforms are. So if you’re going through someone’s payment platform, like my clients all go through a payment platform, you do not owe them a 1099. The payment platform company, again will send them a 1099 K that records their entire income.

So you don’t need to send them one. And that’s only with goods and services because PayPal will cover goods and services. But that’s what we’re gonna talk about next. The other side of that is payment platforms, which is why specifically many bookkeepers and CPAs tell you not to use these is Venmo, PayPal, cash app, things like that, that you pay friends and family.

You will need to send a 1099 for those. And then of course if anybody pays you directly through bank transfer, ACH, Zelle or cash, you will owe them a 1099. Zelle is a payment processor, but they take no responsibility. They’re literally just a connector between banks, so they don’t actually send 1099 Ks and they aren’t responsible for that.

If you send them a bank transfer in ACH for example, you know, I use, I send my parents money sometimes, or my parents send me money sometimes through Zelle and they, it, it was business money that would be a, that would need a 1099. So those are your four key key categories. If you guys are like, Hey Samantha, you missed one, please let me know because I will 110% be happy to tell you if it does need a 1099 or not.

And add it to the decision tree for you. Now, if you have gone through that list and you’re like, Hey, they’ve paid me via Venmo, friends and family, or they’ve paid me via Cash Bank transfer, a CHZ, check, whatever it is, and they need a 1099, you’re like, yes, they need a 1099. They paid me $600. They paid me this way.

They need one. The next question you need to ask yourself is what type of business they are. So there are two types of business that do not require you to send a 1099 unless they are a law firm. So a C Corp or a corporation or an S corp, which means someone who’s an LLC tax as an S corp because it is an election and S Corp is technically not like a separate entity.

They’re an LLC that is taxed as an S corp. They do not need 1099 unless they are a law firm. So if they are a law firm, you still need to send ’em a 10. And regardless if they’re an S corp, I don’t know the rules around that, but I know that law lawyers definitely need that more than, other people probably for an accountability factor as well.

I. However, if they are sole prop or single member LLC, which most of the people in our industry is, then they need a 1099 again. But that’s only if they pay you directly because there’s so many different payment processors nowadays, especially with things like Thrive Cart, which go through Stripe, ada, which goes through Stripe.

Any of those things that go through Stripe are already gonna send you one. Now the last question of course, again, I wanna just go over this, you wanna ask yourself is what did you pay them for? Services or products or goods? So technically you could just get a list of people you paid $600 to, but if you wanna start off just getting a really easy list, you would just do services and then go from there.

It is very important that you remember these rules because a lot of times people either leave out the 1099’s, they actually need to send or send 1099’s. They don’t even need to send, and of course, sending 1099’s costs you money. You really just want to be mindful and think about who you actually owe 1099’s to and who you don’t.

Of course, again, staying on top of this will protect your business. It’ll prevent the IRS from coming after you, and it just helps you to stay a little bit more organized. Like I said, the best thing you can do today is to start getting organized as early as possible. If you’re looking through your books and you see that you have people that are missing W9s.

Reach out to them as early as possible, get those W9s so that by the end of the year you’re not panicking. I know I said November, but the earlier you start, the better. And if you wanna implement that in your onboarding process and say, here’s my W9. Or if you’re working with a provider, say, Hey, can you give a W9 before you pay them?

That would be the best thing for you.

If you enjoyed this episode, remember to follow us on whatever platform you’re listening on. Leave a review and share with a friend who might find this information valuable. Remember that 1099’s are an essential part of business, but they don’t have to be scary as long as you have all of your facts. As always, I wish you a fantastic week and we’ll see you next week. Farewell fellow travelers.