Year-End 1099 Prep: Who Needs One and What to Do Now

December can feel like a pressure cooker for small business owners. You are trying to finish the year strong, take care of your team, and juggle a long list of financial tasks. Right in the middle of all that sits one item that creates stress for almost everyone. The 1099 forms.

Many business owners worry about sending them to the wrong people or missing someone important. Others find out too late that they did not have the information they needed to file correctly. 

The good news is that 1099s do not have to be confusing. When you know who should receive one and what steps to take now, you can stay ahead of the deadlines and avoid penalties that no one wants to deal with.

Our guide below breaks everything down in simple terms. You will learn who needs a 1099, who does not, the most common mistakes to avoid, and the steps to take right now to prepare. With the right approach, you can turn year-end into a well-organized finish instead of a scramble.

What Is a 1099 NEC and 1099 MISC

Most small businesses work with a mix of vendors, service providers, and independent workers. The IRS uses 1099 forms to track certain types of payments you make to those people or businesses.

Two forms matter most.

1099 NEC

The 1099 NEC form reports money you paid for services during the year. It applies when someone performs work for your business but is not your employee. 

Common examples include:

• Independent contractors
• Freelancers
• Consultants
• Repair and maintenance workers
• Bookkeepers not on your payroll

If you pay a non-incorporated service provider $600 or more in a calendar year, a 1099 NEC usually applies. You must send the form to both the recipient and the IRS by January 31.

1099 MISC

The 1099 MISC form reports several other types of payments that do not fall under the services category. Common examples include:

• Rent payments to an individual or non-incorporated landlord
• Royalty payments, like copyrights or licensing
• Prize or award payments
• Some attorney-related payments that don’t qualify for the 1099 NEC

The 1099 MISC filing deadline depends on how you submit it. Some methods share the January 31 date, and others allow a little more time, which is why checking the current IRS rules matters.

The purpose of both forms is simple. The IRS wants a record of the money you paid so the person who received it can report it as income. When forms are missing or filled out incorrectly, it can lead to delays, penalties, or questions you would rather avoid. Clear reporting now keeps everything running smoothly later.

Who Actually Needs a 1099

Many business owners are unsure who should receive a 1099, and this confusion often leads to errors at year-end. The rules can seem technical at first, but once you break them down, they become much easier to understand.

The goal is to identify who performed work or received certain payments from your business and whether those payments meet the reporting requirements. 

Here is the straightforward version of what you need to know.

Vendors and Contractors Paid $600 or More

If you paid someone $600 or more for work and they are not incorporated, they probably need a 1099 NEC. These are people who provide services to your business but are not part of your payroll. This group often includes:

• Independent contractors
• Freelancers
• Professional service providers
• Consultants
• Designers
• Bookkeepers
• Repair and maintenance providers

Anytime you pay a non-incorporated service provider for work, it is worth checking your records to see if the $600 threshold was met. Catching this now helps you avoid year-end surprises.

Rental Property Owners

If your business pays rent to an individual or a non-incorporated landlord, that landlord will usually need a 1099 MISC. Many small businesses overlook this rule because rent feels like a routine monthly expense, but the IRS still requires reporting when the payment goes to an individual rather than a corporation. 

Situations that often qualify include:

• Building or suite landlords
• Individuals who own equipment you rent
• Owners of shared office spaces who operate as individuals

Anytime rent or equipment fees are paid to a person rather than a company, it is important to check whether a 1099 applies.

Attorneys

Payments to attorneys follow their own set of rules. Attorney fees often require a 1099, even when the law firm is incorporated. Many business owners miss this requirement because they assume the rules do not apply to incorporated firms. Attorney payments are always worth reviewing carefully so you can be confident your filings are complete and accurate.

When You Do Not Need To Send a 1099

A few important exceptions make the filing process much easier. These situations allow you to skip a 1099 because the IRS already receives the information through other reporting methods or because the payment type does not qualify. 

Understanding these exceptions helps you avoid extra work and focus only on the payments that truly require attention.

Payments to Corporations

In most situations, payments made to a corporation do not require a 1099. Corporations already follow different reporting rules, so the IRS does not expect you to issue forms for most of these payments. The main exception is attorney payments, which we mentioned above.

Payments Made by Credit Card or Third-Party Processors

If you paid someone with a credit card, PayPal, Venmo, or another third-party processor, the payment processor handles the reporting. That means you do not send a 1099 for those transactions.

W-2 Employees

Employees on your payroll who receive W-2 forms never receive 1099s. Their wages, taxes, and other payroll details are already reported through your payroll system, so you do not need to take any extra steps here.

Product Purchases or Utilities

If you bought products, supplies, equipment, or utilities, those payments do not require a 1099. These are considered standard business purchases rather than payments for services, so they fall outside the 1099 rules.

Here is a simple table that summarizes these rules.

Common 1099 Mistakes and How To Avoid Them

Many business owners want to follow the rules, yet it is easy to get tripped up by small details during a busy year. A few missed steps can turn into extra work, delays, or even penalties. The good news is that most 1099 issues are completely avoidable once you know what to watch for. Here are the most common mistakes and the simple actions you can take to stay on track.

Not Collecting W-9s Early

A W-9 form gives you a contractor’s legal name, address, and tax identification number. Without it, you cannot complete a 1099. Some owners wait until year-end to ask for W-9s. If the contractor moved or stopped responding, problems can pile up fast.

The best practice is to collect a W-9 before you pay a contractor for the first time. This simple step makes everything easier.

Misclassifying Workers

Some owners pay someone as a contractor when the person should actually be treated as an employee. The IRS takes classification seriously. A contractor should control how and when the work is done.

Missing or Incorrect Tax Identification Numbers

If a vendor’s tax identification number is missing or incorrect, the IRS can reject your filing or flag it for follow-up. This creates delays you do not want at year-end. A complete and accurate W-9 form helps you avoid this problem because it provides the legal name, address, and tax identification number you need.

Reporting Payments Made Electronically

If a payment was made by credit card or another electronic processor, you do not need to report it on a 1099. The processor reports those payments directly to the IRS. Many business owners still list these amounts by mistake, which can create confusion or lead to duplicate reporting.

Sending Forms to the Wrong Address

If the address you have on file is outdated, the contractor may never receive their form. This can create delays, confusion, or disagreements about what was reported. It also increases the chance that the contractor will contact you at the last minute for corrections. 

Filing Late

The IRS can charge penalties for every form filed late, and those penalties increase the longer the forms remain unsubmitted. Late filings also create unnecessary stress because vendors may reach out asking for updates or corrections. 

What You Need To Gather Now

Getting ahead of 1099 preparation does more than help you meet the deadline. It also gives you a clear picture of your records and reduces the risk of missing something important.

Use this checklist to organize what you need.

Vendor Information

• Completed W-9 forms for every contractor
• Current mailing addresses
• Legal names and tax identification numbers

Payment Records

• Total amounts paid to each vendor
• Payment method for each vendor
• Dates and descriptions of payments
• A list of payments made by check or ACH that count toward the $600 threshold

Verification Steps

• Confirm vendors who crossed the $600 threshold.
• Check whether the vendor is incorporated.
• Identify all attorney-related payments.
• Verify any rent payments made to individuals.
• Compare your vendor list with your expense accounts to ensure no one was missed.

This small amount of work in December saves hours of frustration later.

Year-End 1099 Prep Does Not Have To Be Stressful

You work hard to run a successful business, and you should not feel overwhelmed by year-end paperwork. Tasks like preparing 1099s may look complicated, but a little preparation now can make the process much easier.

Getting organized early helps you avoid headaches, reduce penalties, and skip the last-minute rush that often hits in January. A simple checklist and a few clear steps can give you a smoother finish to the year and a more confident start to the next one.

If you would like support with your 1099 filings, bookkeeping, payroll, or getting ready for income tax time, TMA Accounting is here to help. We believe small business owners deserve clarity and reliable guidance, especially when financial tasks start to pile up. Our goal is to simplify the work that takes your time and energy so you can stay focused on serving customers and growing your business.

If you are ready for some help throughout the year, let us know today.