What are the most common 1099 filing mistakes small businesses make?

Here are the most common 1099 filing mistakes small businesses make:

1. Missing the filing deadline

   • Businesses often forget that 1099s have strict due dates.
   • Late filings can trigger IRS penalties.

2. Not collecting W-9s from vendors early

   • If you don’t get a vendor’s W-9 before paying them, you may not have the correct name, address, or Taxpayer Identification Number (TIN).
   • This leads to incorrect 1099s or backup withholding issues.

3. Misclassifying workers and vendors

   • Some businesses pay contractors like employees, or vice versa.
   • Independent contractors generally get a 1099-NEC; employees get W-2s.

4. Failing to report all required payments

   • Commonly missed items include:
     • Contractor payments of $600 or more
     • Certain legal fees
     • Rent
     • Royalties
     • Some medical and attorney payments
   • Businesses may also forget payments made by check, ACH, or cash.

5. Using the wrong 1099 form

   • For example, many businesses confuse:
     • 1099-NEC for nonemployee compensation
     • 1099-MISC for rent, prizes, medical payments, etc.
   • Using the wrong form can cause filing problems.

6. Incorrect TINs or name mismatches

   • Typos in the contractor’s name or EIN/SSN can cause IRS rejections or notices.
   • Always match the information to the W-9 exactly.

7. Forgetting to file with the IRS and the recipient

   • Some businesses send copies to contractors but neglect IRS filing, or file with the IRS but forget the contractor copy.

8. Not issuing 1099s to incorporated entities when required

   • Many payments to corporations are exempt, but there are important exceptions, such as certain legal and medical payments.
   • Businesses often assume “corporation = no 1099” in every case.

9. Ignoring state filing requirements

   • Some states require separate 1099 filing, while others participate in combined federal/state programs.
   • Missing state rules can create penalties even if federal filing was done correctly.

10. Poor recordkeeping

• Incomplete records make it hard to determine who was paid, how much, and whether a 1099 is needed.
• Good bookkeeping throughout the year prevents year-end scrambling.

11. Not tracking payment thresholds across the year

• A business may make several smaller payments to the same vendor and not realize the total exceeded the reporting threshold.

12. Submitting paper forms with errors

• If filing by paper, mistakes in formatting, alignment, or copy distribution can cause rejection or delay.

Best ways to avoid these mistakes

• Collect W-9s before the first payment
• Track vendor payments all year
• Confirm whether each vendor is reportable
• Use bookkeeping software or a 1099 filing service
• Reconcile your records before filing
• Review IRS and state deadlines carefully

If you want, I can also give you a 1099 compliance checklist for small businesses or a simple decision tree for deciding who gets a 1099.