In this instructional video, the presenter walks bookkeepers through the complexities of 1099 reporting for attorney and law‑firm clients. The talk begins by highlighting the shift of 1099 responsibility from tax preparers to bookkeepers and the unique rules that apply to legal services. It explains when to use Form 1099‑NEC versus Form 1099‑MISC, the $600 reporting threshold, and how entity type (corporate, LLC, trust) affects filing requirements. The speaker emphasizes the importance of collecting W‑9s, performing IRS TIN matching, and tracking payments made by cash, check, ACH, or direct deposit—while noting that credit‑card payments are reported on 1099‑K by the processor. Detailed filing deadlines (January 31 for recipient copies, February 28/ March 28 for IRS e‑filing) and penalty ranges ($50‑$270 per form) are outlined. Practical workflow recommendations include using QuickBooks contractor features, Gusto’s contractor module, and Keeper for secure electronic W‑9 collection and data syncing. Finally, the presenter advises on pricing the 1099 service (setup fee plus per‑form charge) and securing written client agreements, stressing that rules change annually and bookkeepers must stay current with IRS guidance and internal resources.
Chapters
So it wouldn't be a January if I didn't talk about 1099s, especially this deep into the month of January, 'cause we're probably rolling up our sleeves at this point and knee-deep in it. 1099s are the bane of our existence, I'm gonna say. Used to be in the old days, the tax person would handle them and I would be like, yeah, it's a tax return, let the tax person handle 'em. And now the tax people are going, we don't want it, give it to the bookkeeper. Nobody wants them. They're that hot potato that bounces from person to person. But when you work with attorney clients, you have to understand how to report these and it's critical. I find a lot of bookkeepers, we usually do some sessions on it in the Law Lab because there's a lot of questions around whether attorney payments should be reported on a 1099-Miscellaneous as opposed to 1099-NEC. We get questions even from our own staff like, "Hey, they bought shoes, is that a 1099?" I'm like, "Ah, it's gotta be about a service." So I hope that made you all laugh. But sometimes the questions we get. But anyway, you're determining who gets a 1099. Basically, any payments to attorneys of $600 or more during the trade of business must be reported, whether or not the attorney is incorporated or not. So the rules around attorneys and law firms is different than the traditional rule. Like, if my company, Artesani Accounting, is incorporated. I don't need a 1099. The Proper Trust is an LLC, would get a 1099. So that's the difference. If we were a law firm, both those firms would both get 1099s. So that's a different rule around law firms. So payroll payments for legal services. So even if a law firm hires another law firm to represent them, that would put them on the 1099 Miscellaneous Attorney box category. But if they hired a law firm to work as co-counsel, that would fall into the 1099 NEC box. See how this can be different and confusing? So any gross proceeds for legal settlements are usually reported on a Form 1099 Miscellaneous. It's box number— So other contractors and vendors, you identify those independent contractors that were paid more than $600 during a year of service. And there's rules around how they were paid, which is why I like to encourage people to use the contractor feature in QuickBooks, or use Gusto's contractor feature, so you don't have to really deal with all this stuff. But if you do, and they had client paid with cash or check, you have to track it, and you're gonna have to send a 1099. The exclusion is to any C corps or S corps unless they fall under a special reporting requirement, which is when, if they're an attorney. So use the correct form. So a 1099-NEC is the form that's used to report non-employee compensation. Cleaning lady comes into my office and cleans my office. I pay her more than $600 and she's just a sole, solo, sole proprietor. I have to give her a 1099 for all the services that I pay to her by check. That's an example of a 1099-NEC. I'm hiring a non-employee to come in here. She picks the day, she does the work, lots of rules around that, and she's gonna get a 1099 from me. Now, the 1099-MISC would go to paying for the attorney for gross proceeds like a settlement and some other miscellaneous Payments go on the miscellaneous as well, like rent, prizes. So there's a lot of different 1099s. So you just know that they are there. You should be collecting a W-9 form. My cleaning lady comes here. I have a 1099 W-9 form from her that has her Social Security, because that's how she does her, her sole proprietorship. Many times they're gonna fill out a TIN or taxpayer identification number. For example, for the proper trust, we give you a 1099 with, with that number on it, and then that would indicate to the client, to the person that we've— that's hired us, that that's our number to give us our 1099 form. Now you want to do TIN matching. So you want to make sure that you use the IRS's TIN matching program, make sure that you actually have the right taxpayer ID that matches up with the IRS's records. Otherwise you're going to have problems as you process these. And really the key to this season being a more fluid and happy season is to track these payments throughout the year. You don't pay anybody till you get that W-9 form, and, or you pay people by credit card instead of paying them by cash. Having— if you pay them by credit card and they use a third-party processor, those aren't filed on a 1099. Their payment provider will do that on a 1099-K. So only really the cash, check, ACH, direct deposit payments. Those are the ones that are required for us to file a 1099 for a client. So the filing deadlines, I just want to kind of— this is really high, high level and really a generalized blog. I've written some really detailed ones in the past, so hopefully I can link back to those. 1099-NEC, it must be filed with the IRS— and provided the recipients by January 31st. Most of the services, I believe QuickBooks kind of closes down the 28th, so you have to have that in before then so that it's processed by the 31st. A 1099 miscellaneous forms must be sent to the recipient by January 31st, but the IRS has to have their filing by February 28th. And if you're e-filing, it's March 28th. So paper filing Hopefully you're not paper filing, but if you are, that's February 28th. Penalties for late filing and incorrect— you can get penalties for late filing, incorrect information, and/or failure to file. So ensure that the forms are completed accurately and submitted on time, really, to avoid any fines. So when you talk about settlements, settlements Legal settlements is where you report on a 1099, report gross proceeds, the entire settlement amount paid to an attorney on Form 1099 Miscellaneous, regardless of how much the attorney keeps for a fee. So the whole amount goes to the, to the attorney, and then they have their own paperwork to do on their side of it. You want to communicate and clarify with any clients what their requirements are. So as you have these clients, you want to clarify if you're doing the 1099s for them and make sure that the client, your attorney-client, understands which payments and vendors require a 1099 and where the documents are going to be stored. We like Keeper for this. So we use Keeper layered on top of our QuickBooks and it actually pushes the data into QuickBooks. But electronically, I can— I can add to it. So I can electronically ask somebody for their W-9 and they can fill it out really securely. And it actually, when they send it back, it gets put into your QuickBooks, which is wonderful. QuickBooks is masking those numbers, so it makes it a little harder if you're gonna use like Track 1099 to process your 1099s instead of QuickBooks. You can do that if you have QuickBooks, a client with QuickBooks and QuickBooks payroll, it is free to process the 1099s. It's part of what you're paying for. It's not exactly free, but it's included in your payroll service. So you might want to process them through Intuit. This year it's new. You can process corrections and state filings. So that was one of the weaknesses of QuickBooks's 1099s last year. This year it's changed, so it's better. And the penalties— I kind of go into detail in the article that's attached here for the penalties, but they can range from anywhere between $50 to $270 per form. And speaking of which, if you are doing this work for a client Make sure you charge for this. It's usually a loss leader if you don't charge enough. Consider a fee like $250 setup fee, and then maybe $25 to $30 per filed form. Get that agreed to in writing before you actually do the work for a client. And because it does take time to get these W-9s if they weren't collected during the year, and making the phone calls— I need this information— when they— people ignore your request for a W-9. That's why it's always important to get them before they get paid. So something to consider as you start to do this work. And it's not a fun job. It's a task like no other at the end of the year, at the— in January, when we're already busy enough as it is finishing up the year for clients. But I wanted to at least bring this topic up again, revisit it, hopefully get it retagged somewhere so that you can see the other in-depth articles. Make sure you stay up to date on it, though. If we pull some old articles to, to link back here, make sure you're aware that the The rules change every year. So you want to really look at the rules in the IRS.gov and then also kind of rely on what we have here too for information. But the rules do change every year. I've seen it happen over and over again. So I hope that's helpful. Until next week. Bye now.
