Fed up with piles of 1099s at tax time?
Paperwork related to independent contractors can quickly pile up. From W-9s to 1099-NECs to quarterly filings to keeping track of what each contractor was paid…
There’s a lot to manage.
But here’s the good news. Using affordable tax filing software and putting some systems into place can make filing contractor paperwork easy. In fact, with the right approach it can be faster and save money when tax season rolls around.
Ready to learn how? Let’s dig in.
What you’ll pick up:
- Why Contractor Paperwork Matters More Than Ever
- The Paperwork Businesses Need To Know
- Smart Systems That Make Paperwork Simple
- Tax Software That Does The Work For You
Why Contractor Paperwork Matters More Than Ever
The number of independent contractors in the United States is exploding. Over 70 million Americans are self-employed. That means 70 million contractors creating extra paperwork for businesses that hire them.
And the IRS is taking notice.
Any business that pays an independent contractor $600 or more during the year is required to report that income on a 1099-NEC tax form. File it late or fill it out incorrectly and penalties will accrue quickly.
Here’s the reality:
The more contractors a business pays, the more forms need to be filed accurately and on time. And that’s where affordable tax filing software really comes into play. Software like Advanced Micro Solutions 1099 software simplifies the process of generating, managing, filing and storing all the forms needed without hiring an accountant or spending days entering data by hand.
It’s honestly that easy.
The Paperwork Businesses Need To Know
Before jumping into how to streamline the paperwork process, it’s smart to know which paperwork should be tracked. While it may seem like contractor paperwork involves a dozen different forms, there are really only a few that matter.
Here’s the important stuff:
- Form W-9. This document should be obtained from every contractor before payment is made. It provides their taxpayer ID number and legal name. The IRS requires businesses to retain W-9s for at least four years.
- Form 1099-NEC. This form reports all non-employee compensation of $600 or more paid to contractors. Formerly reported on 1099-MISC box 7, the 1099-NEC must be filed with the IRS by January 31st.
- Form 1096. A summary transmittal form that must be submitted with paper 1099 forms to the IRS. Businesses who e-file do not need to complete or submit this form.
There are a few others that may come up as well, but these are the biggies. Mastering these three forms each year is the fastest path to keeping a business compliant.
But this is where most businesses fall short…
Waiting until January or February to start collecting W-9s. Waiting until the last minute to start thinking about contractor paperwork is asking for trouble. Come tax time it’s a scramble to locate W-9s, calculate 1099s and file everything on time.
Get in the habit of collecting W-9s from new contractors before that first check is ever cut.
Smart Systems That Make Paperwork Simple
There’s a secret that businesses who effortlessly manage contractor paperwork know.
The key to keeping everything straight is staying organized year round.
When a business waits until January rolls around to think about contractor paperwork it’s already behind. Instead, set up some simple systems that help keep track of everything throughout the year. Here are a few ideas:
Create a new contractor onboarding checklist. Every new contractor that a business hires should fill out a W-9 form before they ever get paid. Period. Save these electronically in a folder that’s easily accessible when tax time comes.
Track all contractor payments as they’re made. Run a report or keep a spreadsheet handy that records all contractor payments as they’re made. Include the date, amount and who it was paid to. Not only will this simplify 1099 preparation in January, it’ll also help ensure accurate recordkeeping year-round.
Set calendar reminders for filing deadlines. The most important deadline is January 31st for filing 1099-NECs with the IRS and mailing a copy to each contractor. Missing this deadline could result in a penalty of $60 to $310 per form depending on how late the filing is.
The moral of the story? Stay organized year round and there’s never a reason to panic when tax season comes.
Tax Software That Does The Work For You
Speaking of tax season…
Would it be better to spend hours filling out taxes or click a few buttons and be done in minutes?
When it comes to filing contractor paperwork at the end of the year, most businesses choose to handle things manually. But who wants to input dozens (or hundreds) of individual 1099s only to file them away?
Not only is typing out tax forms super tedious, but it also leaves a lot of room for error.
By automating tax preparation with software, those headaches disappear. And affordable tax filing software can do most of the heavy lifting. Look for software that includes:
- Bulk filing so multiple 1099s can be processed at once
- E-files directly to the IRS so there’s no need to worry about paper forms
- Error checking to avoid costly mistakes
- W-2 and 1099 capabilities all in one place for businesses with employees and contractors
Instead of spending hours laboring over tax forms, smart software makes it possible to import data, verify it’s correct and file it electronically. All in a fraction of the time.
With freelancers accounting for $1.27 trillion of US economic output, there’s never been a bigger need for solid tax software. Businesses that take advantage of these tools now will leave the competition behind.
Don’t Overlook State Filings
Here’s another thing to keep in mind…
While most businesses are familiar with filing requirements at the federal level, individual states shouldn’t be forgotten. Some states may have different requirements or deadlines when it comes to 1099 reporting. Businesses located in states that participate in the Combined Federal/State Filing Program can file one set of returns that goes to both the IRS and their state.
Be sure to look up regulations for each state contractors reside in. Neglecting state-level filing requirements will only result in more penalties.
Wrapping It Up
Don’t let contractor paperwork become overwhelming. Take action today to make it one of the easiest parts of running a business. Remember:
- Get a W-9 from every contractor before payment is made
- Track all contractor payments year-round
- Invest in affordable tax filing software to automate 1099 prep
- E-file before January 31st to avoid penalties
- Double check state requirements if applicable
By staying organized and putting smart systems in place, any business can avoid costly penalties and enjoy stress-free tax season. Independent contractors are here to stay… so start getting that paperwork in order now.
