Ready to have 1099 filing on easy street with 1099 software tools?
Tax season is almost here, and every small business owner has mixed emotions about it. And if you hire independent contractors, freelancers, or vendors? You already know the nightmare of 1099 compliance. It can be such a hassle if you’re trying to do it the old school way.
The problem?
Doing it all manually is time consuming, easy to mess up, and you never know when the IRS will come after you for a little mistake on your part.
The good news?
Great 1099 software can relieve all the stress and automate the entire process. Let the tech take over so you can keep focused on growing your business.
What you’ll learn:
- Why 1099 Software is More Important Than Ever
- The Important 1099 Software Features You Need
- How To Pick The Best 1099 Tool For Your Needs
- Common Mistakes To Avoid When Filing 1099s
Table of contents
Why 1099 Software Tools are More Important Than Ever
Full-time independent workers more than doubled from 13.6 million in 2020 to 27.7 million in 2024, according to ADP Research. That’s a 100% increase in just four years.
Wowza.
The shift to more contingent work has changed how businesses operate. Companies of all sizes are embracing flexibility by hiring more contractors, freelancers, and temporary staff.
The problem?
Contractors require an additional form to be filled out by you, the payer of nonemployee compensation. This is Form 1099-NEC. The IRS still also requires Form 1099-MISC for independent contractor payments.
For 2024, the IRS will accept the first two digits in box 2 to be reported as 27. This helps with processing as most of the work is automated. The full Social Security Number or TIN for the payee will be stored.
Also, for 2024, the IRS has added dependent care payments in Box 1h. The amounts from box 1h do not include FUTA and social security taxes.
For business owners, that means hundreds, or even thousands, of 1099s to create and file accurately and on time. Not to mention the additional copies to send out to each payee.
Source: Pexels
And the IRS has increased the requirements.
Filing 10 or more “information returns” used to be an option to file 1099s on paper. This year, and going forward, the IRS says e-filing is required for businesses with 10 or more returns. If you aren’t filing electronically yet, you must take care of this soon.
The IRS actually has a tool you can check to see if you need to start e-filing. Just check out the IRS e-File Quick Start Tool.
This is where 1099 software tools really make your life easier. The right tool, with the features of 1099 software that automate calculations, IRS e-filing integration, and error detection, handles the heavy lifting so you can relax during tax season.
Think about it…
The IRS penalty for late filing 1099s can range from $60 to $310 per form. You do the math. Having just a few contractors, but filing late, can add up quickly in penalties.
The 1099 Software Tools and Features You Need
1099 software is not created equal. If you want to make sure you have the right tools to make your tax life easier. Be sure to check out these important features in a 1099 software tool.
IRS E-Filing Integration
Your 1099 tool must connect with the IRS directly to e-file. It is the law, now. All businesses with 10 or more forms must e-file. Make sure any tool you choose offers integration with the IRS IRIS portal.
TIN Matching and Validation
Wrong numbers and you have a real problem. Correct Taxpayer Identification Numbers are key. Good software will validate TINs against IRS records before filing. This eliminates errors early in the process and prevents rejections from the IRS.
Automatic Calculations
No more math! Your 1099 tool should do the calculations. It should handle state requirements, if applicable, and populate the forms correctly. Set it up once and forget it.
Bulk Import Functionality
No one wants to enter data manually. Quality 1099 software gives you the ability to bulk upload or import data from spreadsheets or accounting software.
Recipient Copy Delivery
Sending copies to contractors is required. The best software gives you multiple options for sending copies including print, mail, and secure electronic access.
Audit Trail and Record Keeping
Organization is important. You should be able to store filed forms for future access in your software. Also, the ability to create records is key, if the IRS ever comes knocking on your door.
How To Choose the Best 1099 Software For Your Needs
So, how do you pick the right 1099 software tools for you? Start by considering your own unique situation. Here’s what to think about to narrow the list:
Volume
Do you file just a few 1099s each year? Or do you file hundreds or even thousands? Some software is best suited for lower volume. Other tools were built for the big guys.
Integration Options
Will the 1099 software work with your accounting system? QuickBooks has different integrations than Xero. If you use software for payroll or accounting, seamless integration is critical.
Support Options
Tax deadlines wait for no one. If you need help, you need it NOW! Check out live support options, including support available during peak filing season.
Compare Pricing
Some charge per form. Others offer flat monthly or annual fees. Do the math on your expected actual cost to find the best fit.
Common 1099 Filing Mistakes To Avoid
No matter how great the software, you still can make mistakes. Here are some common errors to be aware of when filing 1099s:
- Missing the deadline — 1099-NEC form is due January 31st to both the IRS and recipients. Highlight it on your calendar.
- Using the wrong form type — 1099-NEC is for nonemployee compensation only. 1099-MISC is for rent, royalties, and other income. Know the difference.
- Not collecting W-9s early — You can’t file until you have contractor information. Request W-9 forms when you first start working together.
- Forgetting state requirements — Many states have their own 1099 filing requirements. Your software should also be able to handle combined federal/state filing, if your state participates.
- Ignoring backup withholding — If a contractor refuses to provide their TIN, you may need to withhold taxes. Your software should flag these cases.
The Price of Failure is High
Let’s be blunt here…
1099 compliance is not optional. The IRS will not let this go. Penalties for what they deem “willful disregard” can run you $680 per form with no maximum limit.
Ouch.
Even honest mistakes hurt. File late and you could be subject to penalties of $60 to $310 per form. Incorrect information can lead to further fines. Small businesses can face maximum penalties of over $1 million for intentional disregard.
Don’t think the IRS isn’t serious. In the past few years, the IRS has been ramping up enforcement efforts. The IRS cross-checks 1099 data with tax returns more than ever before. Missing or incorrect forms create audit triggers.
And if the IRS audits you? Good luck. You’ll need every record you can possibly have.
Compare this to the price tag of decent 1099 software tools. Most programs are a fraction of what even a single penalty will cost you. That’s a no brainer investment.
It will pay for itself over and over.
Pretty smart move, right?
Wrapping it Up
1099 filing doesn’t have to be such a chore. The right software automates the grunt work and keeps you in line with IRS mandates.
To quickly recap, these are the important features you should look for:
- IRS e-filing integration for quick and accurate filing
- TIN matching to identify errors before filing
- Bulk import capabilities for efficiency
- Multiple options for delivering recipient copies
- Audit trail and record-keeping features for protection
Independent contractors now make up a major part of the workforce. Make sure you have solid 1099 processes and systems in place to manage the workload. A good 1099 software can ease the stress, save time, and keep you out of trouble with the IRS.
The deadline is not far off. Get the 1099 software tools in place now.
