1099 Best Practice

As we wrap up 1099 season, we want to share a few best practices to help ensure a smooth and stress-free filing process for 2026. Proactive steps throughout the year can significantly reduce issues, corrections, and potential penalties at year-end.

Below are key guidelines to follow:

Best Business Practices for 1099 Compliance

 

1. Collect a W-9 Before Issuing Payment

It is best practice to collect a completed Form W-9 from a vendor before issuing payment. While you are still obligated to pay vendors for services performed, obtaining the W-9 upfront prevents delays and compliance issues later.

• The W-9 provides the vendor’s legal name, entity type, address, and Taxpayer Identification Number (TIN), all required for accurate 1099 reporting. IRS Form W-9: [VIEW HERE]

Once collected:

✔ Review the W-9 for completeness and accuracy.

✔ Upload the W-9 into the vendor profile within your accounting system.

✔ Or send it to our team so we have the required information on file.

Even though we perform TIN matching when filing 1099s, collecting accurate information upfront helps avoid rejected filings and penalty notices

2. Categorize Payments Properly

Correct expense categorization throughout the year makes 1099 reporting much easier.

• Services (e.g., professional fees, contractors) generally fall under 1099-NEC
• Rent, certain medical payments, and other specific items may fall under 1099-MISC
• Payments for goods/products only are not reportable on a 1099

Proper coding in your accounting system allows built-in 1099 reports to generate accurate vendor lists automatically.

3. Understand Which Vendors Receive 1099s

Although it is best practice to collect W-9s for all vendors, not all vendors will receive a 1099 at year-end.

Generally, 1099s are issued to:

• Individuals / sole proprietors
• Single-member LLCs (unless taxed as an S- or C-Corp)
• Partnerships
• Attorneys (including corporations in certain cases)

Corporations (S-Corps and C-Corps) are typically exempt from 1099 reporting, with limited exceptions.

If a vendor states they are tax-exempt, you can verify their status using the IRS Tax-Exempt Organization Search tool: [VIEW HERE]

4. TIN Matching

We perform TIN matching when filing 1099s for our clients. However, if you prefer to be proactive, you can use the IRS TIN Matching Program:
[VIEW HERE]

Best Business Practices for 1099 Compliance

The IRS imposes penalties for:

• Failure to file 1099s
• Filing late
• Filing with incorrect information (incorrect TIN, name mismatches, etc.)

Penalties are assessed per form, meaning they can add up quickly if multiple vendors are affected. Addressing mistakes as soon as identified helps reduce potential penalties.

Additional Tips

• Collect W-9s from all vendors at onboarding.
• Maintain organized vendor files in your accounting system.
• Use your accounting software’s 1099 tracking features.
• Reach out to us throughout the year with questions rather than waiting until January.

There are many nuances to 1099 reporting. If you have questions about a specific vendor or situation, please contact your accountant—we’re here to help!