Today we are talking about sending Form 1099-NEC. It seems like a minor detail, but not sending 1099s can lead to serious consequences. As a small business owner, it’s easy to get distracted from sending 1099 forms to vendors and independent contractors. We can help, but we need some info from you as well. Here’s why sending 1099’s needs to be a priority for your business.
Key Point #1: Audit Risk
One of the major benefits of working with a CPA firm on your business accounting is that they will help reduce your Audit Risk. If the IRS doesn’t receive a 1099 Form for payments your business made, it raises a red flag. The IRS also checks up on you by asking questions on your tax return about whether you had vendors who needed 1099’s and whether you sent out all required 1099’s. Answering these questions incorrectly could be committing fraud. Failing to answer that you sent the 1099’s increases your risk of audit. The IRS views these 1099 forms as their best chance to collect tax from independent contractors.
While there’s no exact formula for how much your audit risk increases if you fail to file required 1099s, we know that it’s a significant factor. When the IRS discovers missing forms 1099-NEC, that is a red flag to audit your whole tax return.
Key Point #2: Penalties for Non-Compliance Add Up Quickly
If the risks of increased audit scrutiny aren’t enough to convince you, consider the financial penalties. The IRS can impose fines ranging from $60 to $310 per form for late filing, depending on how overdue they are. If you intentionally disregard the requirement, the minimum penalty jumps to $630 per form or 10% of the unreported income, whichever is greater.
These penalties can add up fast, especially if you work with multiple vendors or contractors. Failing to send 1099s isn’t just a costly mistake—it’s one that can quickly spiral into a financial nightmare.
Key Point #3: Skipping 1099s Can Disqualify Your Deductions
One overlooked risk of not issuing 1099s is the potential disallowance of your tax deductions. Payments to vendors and contractors must be documented with a 1099 to count as deductible business expenses. If you skip this step, the IRS or State Dept of revenue might reject those expenses during an audit, increasing your taxable income—and your tax bill.
What you need to do
Here’s the good news, we are happy to prepare these 1099’s for you and get them sent in to the IRS! However, we need you to provide some information so that we can get this done for you. Each vendor needs to complete a W-9 Form to provide basic information like legal name, address, and tax ID #. The W-9 also asks if they are taxed as a corporation. Knowing if they are an LLC is not enough!
Here’s more good news, anything that you pay by card does not require a 1099-NEC because the credit card processor will send a 1099-K instead.
If we do your Bookkeeping, we have already started checking for vendors that we need a W-9 for. Double-check your emails from our office in November to see whether you need to get some to us. We will remind you again in January. The absolute best way to stay on top of this is to have every vendor and contractor fill out a W-9 before you pay them for the first time.
Conclusion:
Now you know why issuing 1099 forms is not optional for running a successful business. Collect that W-9 info so that we can protect you from penalties and disallowed deductions. Skipping this essential step is not worth risking an IRS audit. We need to work together so you can stay out of trouble! Think of it as a small investment of time and effort that pays off in peace of mind and financial security.