If you hire contractors, freelancers, or service providers for your business, issuing 1099 forms isn’t just good bookkeeping, it’s a legal requirement. Yet many small business owners overlook or misunderstand the process, which can lead to penalties, stress at tax time, and messy books. Here’s why sending out 1099s matters and how it ultimately protects your business.
1. It’s Required by the IRS
The IRS requires you to send a Form 1099-NEC to any non-employee contractor (1099-MISC for rent) you paid $600 or more during the tax year for business-related services.
This applies to:
- Independent contractors
- Freelancers
- Consultants
- Single-member LLCs
- Unincorporated service providers
If you pay them through cash, check, ACH, Venmo, Zelle, or another direct method, those payments count toward the $600 threshold.
Failing to send 1099s can result in IRS penalties, which increase the later you file.
2. It Keeps Your Business Compliant
Sending out 1099s shows the IRS that you’re reporting your expenses accurately. It also ensures that contractors are reporting their income correctly. When your business is compliant:
- You avoid fines
- You reduce audit risk
- You maintain clean financial records
Even one missing form can raise red flags, so consistency matters.
3. It Helps You Track Real Business Expense
Throughout the year, you may pay several contractors, marketing help, a web designer, bookkeeping, labor, snow removal, cleaning, etc. At tax time, trying to remember who you paid and for what is overwhelming.
Issuing 1099s requires you to:
- Collect W-9 forms
- Track payments
- Categorize contractor expenses
This process helps ensure your Profit & Loss statement is accurate and your tax deductions are correct.
4. It Protects You During an Audit
If your business is ever audited, the IRS will compare:
- What you deducted as contractor expenses
vs. - What your contractors reported as income
If you didn’t issue 1099s, the IRS may disallow those expenses meaning you could lose deductions and owe more taxes.
Sending out 1099s creates a clear paper trail that protects you.
5. It Builds Professionalism and Trust
When you consistently request W-9s and issue 1099s:
- Contractors see you as organized and professional
- You set clear expectations
- Everyone knows taxes are handled correctly
A business that treats compliance seriously is a business people trust.
Final Thoughts
Sending out 1099s isn’t just a legal requirement, it’s a smart business practice. It helps you stay compliant, protect your deductions, maintain accurate records, and avoid IRS penalties.
If you’re not sure who needs a 1099, how to collect W-9s, or whether your contractor qualifies, White Pine Bookkeeping can help. I can review your records, identify who needs a form, and make sure everything is filed correctly and on time.