Every January, the same scramble. Who did we pay? Did they cross the threshold? Does anyone have their tax ID? Why is this contractor's total spread across four different expense accounts?
None of that is a January problem. It is a March problem, and an August problem, that only becomes visible in January.
The W-9 rule that solves most of it
Collect the W-9 before the first payment. Not before the first 1099 — before the first payment.
This is the entire trick, and it works because of leverage. A vendor who wants to be paid will send you their information promptly. That same vendor, eleven months later with no outstanding invoice and no relationship pressure, may not respond at all.
Make it a step in vendor setup: no W-9, no payment scheduled. Once it is a rule rather than a favour, nobody argues with it, and the chase in January simply does not happen.
Code contractors so they can be found
The second failure is structural. A contractor gets paid $14,000 across the year, and it lands in Repairs, Professional Fees, Subcontractors, and a general Office expense — because whoever entered each bill categorised by what the work was rather than who did it.
Now the total is invisible. Nobody can tell they crossed the reporting threshold without going transaction by transaction.
The fix is that payments are recorded against a vendor record, and the vendor record carries the 1099 flag and the tax information. The expense account still describes the nature of the work — that is what it is for — but the vendor dimension makes the total retrievable in one report at any point.
What actually gets reported
Broadly: payments for services to unincorporated vendors above the annual threshold, on Form 1099-NEC. Rent, legal settlements, and certain other categories go on 1099-MISC.
Three details that trip people repeatedly:
Card and third-party payments are excluded. If you paid a contractor by credit card or through certain payment platforms, the processor reports it on a 1099-K. Reporting it again on your 1099-NEC double-counts their income. Payment method matters, which means the books need to record it.
Corporations are generally exempt — but attorneys are not, regardless of entity type. Legal fees get reported whether the firm is incorporated or not.
Materials do not count, services do. On a mixed invoice, only the service portion is reportable, which is another argument for invoices that separate the two.
Reconcile before you file
Before anything is transmitted, the 1099 totals should tie to the books. Pull the vendor payment report, compare it to the amounts you are about to report, and investigate every difference.
Differences are usually one of three things: a payment recorded to the wrong vendor, a card payment that should be excluded, or a bill entered but never actually paid — accrual timing versus the cash basis 1099s are reported on.
Filing first and reconciling later means corrections, and corrections mean explaining to a contractor why the number on their form changed.
The honest boundary
A 1099 is an information return. It reports what you paid someone else. Preparing and e-filing them is a bookkeeping function, and it is squarely within what we do — it is not income tax return preparation, which we do not do.
The related question people ask — whether someone should be a contractor or an employee at all — is a genuine legal and tax determination with real consequences, and it belongs with your CPA or an employment attorney. What we can tell you is what the books say: how much they were paid, how consistently, and over what period. That is usually the evidence that conversation needs.
The mechanics live under 1099 preparation and e-filing, and collecting W-9s at onboarding is part of how we run accounts payable.
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We handle your bookkeeping end-to-end — categorization, reconciliation, month-end close, and clean financial statements, so your books stay current and CPA-ready.