Essential 1099 Processing Tips for Law Firm Bookkeepers

Welcome back. And this week I'm gonna talk about 1099 processing for law firm bookkeepers. I'm just recently back from going to AppyCamp, ClioCon, Reframe, and Intuit Connect. So a whole bunch of conferences, and now I'm ready to put head down and start really working on my firm, my business, and all the things that I learned from all of these conferences. One of the things you should be thinking about is 1099s and processing them for your clients. It's far better to look at the data now and start to get yourself set up and properly aligned than having to do it in January when you've got 31 days. And it's not a lot. And that's actually less than that if you count in the holidays to get this work done for your clients. Get yourself in place. Get a process in place. So the first thing you should do, because laws change, is understand the reporting requirements. Understand and familiarize yourself with the 2024 IRS guidelines. Irs.gov. Go take a look at it and, and understand exactly what the requirements are for compliance for your, for your clients. Then the second thing you should do is start to develop a payment tracking system. So if a client pays, sometimes pays a vendor in a credit card, and then sometimes pays by Venmo, and sometimes pays by PayPal, and sometimes pays by check. Ah, that makes complexity, right? So Understand and develop a payment tracking system and establish robust systems in place to monitor payments to vendors and contractors throughout the year. Kind of late to do that now, especially sometimes we get those clients that come along to us in January. They're new to us. We can't do it at all, but start to think about how you can maybe change and make the process easier for yourself. Intuit does have 1099 tracking. You can do it. You can pay for it. It's got a system in place. It's much improved from the past, but it makes a client— it makes the vendor have to sign up for a program in order to be able to get the details of their W-9 in. This is why we use Keeper in our firm. It's really simple, great way of tracking. It filters it out. It figures out what's been $600, what was paid by check, what was paid by the— It's got a system in place that does it for you. So it's not that expensive of a tool. Does a whole bunch of things as well as doing this one thing. We use it for quality assurance, but it's really great for 1099s. You can send that link out to the person that you need the W-9 from. They can fill it out securely and send it back. So no more sending things by email where you might be exposing the client and, and not adhering to the rules that we have to adhere to to make sure data is safe. The next thing you need to do is verify the vendor information. And this is a step that sometimes can be missed, but you want to make sure that you have accurate contact details and tax IDs because that can throw up a 1099. It can also make it so that when you do the reporting, it doesn't come back properly. You have a deadline. The deadline is January 31st, so you need to collect all that information and prepare the 1099s promptly to meet the deadlines to avoid penalties for your client. You want to file with the IRS. We use Track 1099. There's lots of services out there. Like I said, you can use Intuit. We do use it for the smaller clients, but For the most part, we use Track. So that's just the basics that you need to know about with 1099s. I'm just gonna touch upon a couple of things that make 1099s a little bit more unique with law firm bookkeepers. Handling joint checks for 1099s can be tricky. So you've got a joint check that comes in if you're a personal injury attorney where there's two parties involved, and you need to really stop and look at the payment terms, understand the purpose of the payment and any relevant documentation. That's key to knowing whether the 1099 who it needs to go out to. And then allocate the payments, decide on the appropriate distribution of the funds between the parties. And then you might need to talk to your tax person to make sure that you're doing this exactly right. Don't let that all be on your shoulders. Prepare the 1099s, issue them to each party and reflecting their share of the payment, keeping accurate tax identification information, and then keep documented records. So you want to keep records in case there's an audit in the future about a joint check. Mm-hmm. So for settlement checks, and this is where it gets a little sticky. Settlement checks require 1099s depending on the nature of the payment, nature of the payment, and the parties that are involved. Payments over $600 for non-corporate entities especially typically require 1099. We will see them going out to as well. When you get into personal injury, it's a whole— I could do a whole article on this. It could go to maybe a— somebody who's in an accident. They had to go to a physical therapist. That physical therapist is an LLC. And you paid them, even if you paid them with trust funds, you still have to send a 1099. So there's a lot of complexity when it comes to 1099s with personal injury attorneys. So make sure you understand that. But the general rule for attorneys in general— so if you, you have to send out one for any attorney that you did work with. This is separate. Now, this is 1099 miscellaneous form. You would send it out if the gross proceeds were used for compensation. So those are processed compensation to attorneys for settlements. Now, if it's— the attorney was hired as a of counsel or subcontractor, then you're looking at it being an NAC form. So you've got the 2 different forms you have to deal with. If I'm working with an attorney that was hired to represent my law firm client, then they get the miscellaneous form. If I'm working with an attorney that worked and helped me on a case or a matter and I'm paying them as an outside counsel, then that's, that's really a non-employee compensation. So that's an NEC form. So know the difference between the two of those. And then try to implement a smooth workflow for 1099s. This is the time to do it, right? It's, it's November. So we don't want to have to be doing this in January. So take a monthly review. This is what we do in our firm. We have it set up as one of the tasks that we have set up in Financial Sense to make sure that we regularly update any 1099 eligible vendors in, in during the year. We like to send a report out to the client. These are the vendors that we see need 1099s and have the client sign off on that. So that kind of takes some of the ownership off of us. We want to use the software, which is why we use Keeper, or we use QuickBooks, or we use Track 1099. So these are all software that we're going to use in the process of this to streamline the data collection and, and Form preparation. It's a really important piece. This is not a manual thing. Nobody should be typing into a form, nor can you anymore. They've changed the rules on that. So there's a, a restriction on how many forms you can send out that are manually done. So no one's going to Staples and buying the package anymore. It's very, very rare that we see anybody be able to do that with the restrictive amount of forms that are allowed that way. And then the client communication. This is the part that gets really sticky in January. If you have to be calling up to get this W-9 information, and you get resistance from people that don't want to give you the number because they don't want to get the 1099. You really want to discuss that with your attorney-client to ensure that it's a mutual understanding of compliance and compliance. So if you follow these guidelines and maintain open communication with your clients and the tax professionals, law firm bookkeepers can really navigate the complexities of 1099 processing smoothly and efficiently. It doesn't have to be a major headache. That's the key. That's why I'm bringing it up now. We can start to get those processes in place. It will be a topic on the future, on a future Law Lab. So you really want to take a look and see, we'll be probably touching upon that on in December. We have two blog posts going up. We had a really amazing conversation with someone about 1099s, an expert. So keep watching our podcast for that. So you'll see that as well. And keep following me on the blog so you get to follow all these tips and hopefully it makes sense. And I'll probably share my decision tree too, again, as I did last year. And I think it needs to be updated, so. Yeah. We'll see. Rules change, laws change. Check it out. And on that note, we'll see you all next week. Bye now. Bye.