Understanding 1099s: A Guide for Legal Bookkeepers

I wanted this week's video and of course accompanying article to be a guide for legal bookkeepers to help them to navigate the world of 1099s, which can definitely be a very complex task. We still, Sarah and I still get asked by staff, is this for a 1099? Is this for a 1099? Should this person get a 1099? It's just constant questions because it is so complex. So with the fundamental principles of issuing 1099 forms remaining consistent so far this year, they have changed them on the last day. So don't be so rigid with it. Double check. The key difference is the nuances that comes with dealing with mostly, for the most part, personal injury attorneys. So I'm gonna start with the basics. You may just have landed here. You may be in our law lab. What is a 1099? So 1099 form is an IRS tax form that reports income other than wages, salaries, or tips. And the most common type of 1099 that you're going to deal with is most likely going to be the 1099-NEC, which is specifically for reporting payments made to non-employees for services provided. Now, we do deal with having to send out forms to medical professionals. We deal with having to send out forms for rent. It's not just '1099 NECs' and we're done. It's not how it works. So the first step in working really with a 1099 NEC is to determine the independent contractor and to determine, or the freelancer, and if you paid them over $600, that's the first step. Anything over $600 in a tax year is going to maybe lead them down the bucket of having to report them on a 1099 NEC. It also includes rent and other income. So those are other places you might be sending a 1099. The most important step at this point of the year, which is why we're doing this article right now, is to collect the W-9 forms. Do it now. Don't do it in January or late January when these tax forms are due. January 31st, NEC forms. You don't want to do it that late because if you don't have the W-9, you want to do it before you pay them. That's the easiest way to have a captive audience to get that form. Lots of way to do this. You're looking to get the tax identification number, or the TIN, as it's affectionately called, and you want to do this securely. Don't be sending it out and on an email. Just— it's just better practice to use either Intuit's QuickBooks methodology of sending them out. You can actually request it on the Contractor tab, which is on that left side underneath, like expenses, or it's actually under the payroll, or you can do it through a program like Keeper. I like Keeper or Track 1099 or another program that helps you create and send these out. The next step is you're gonna prepare these forms. So you're gonna track the payments. You wanna look at how they're paid. So you may have paid somebody over $600 in a year, but maybe they paid with a credit card. Those you don't have to worry about. So that's a wonderful part of not having to worry about that. Or you paid them through Gusto or you paid them through, you know, into QuickBooks as a contractor, you don't have to worry about that. That's all gonna be tracked and tackled for you. That's one of the better reasons to use those programs. But also know that if you didn't or you've got a client that's brand new to you that you're trying to help get through this and they never collected the W-9s, now's the time to do it. You wanna prepare the forms using the information that's collected on the, on during that tax, at the end of the tax year. Accounting software, QuickBooks does this. You can do it through their program if they, if you have payroll Premier or Elite, they'll be included in that. So you don't have to pay for that service. If you paid for the contractor version and you're paying per use, per payment, there's like an $8 fee. I think it's $8. Then you're gonna have that included in, in getting the forms done for you. The next thing you do have to distribute them. They need to be out by January 31st. Electronically is the way to go. Paper ones are gonna cost you extra money. Even if you do have payroll system, you're gonna pay for that. Anything to do with stamps and mailing is gonna cost you more money. Money. And then you file the 1096, which is the overview form for all the forms you've sent out. You file that with the IRS, and that's usually— it just summarizes the 1099s you're filing. That deadline for that form is February 28th if you're doing it by mail, 31st of March if you're filing electronically. So now, how does this— what does this mean when you start to look at general clients? You're kind of looking at anybody. If you work for contractors, you're going to look at like maybe the electrician is a has a sole proprietor business and you've paid him more than $600 in a year, or, or her more than that, you want to have to send out the 1099. Maybe you work with a recording company that records, you know, mediation or anything like that, and the court reporter, you— they— there are a lot of times we have to send out 1099s. They're just a partnership or not in a corporation. So For example, Proper Trust. We have a company, Sarah and I, we're partners in the company. It is not an S corp. It doesn't act as an S corp as of today. So you would have to send us a 1099. So the bookkeeper on file, you'd have to send it out if they're a partnership or a sole proprietor. Paralegals, if they're using virtual paralegals or the company is a partnership, you have to do that. How am I going to know that? Well, Google search will help you look that stuff up. If the company doesn't respond, you really want to start doing this now when people aren't as busy at the end of the year and the beginning of the a year. It's usually typically really busy for everybody. So when it comes to attorney clients, if your attorney that you're working with has an attorney that represents them, that does not go on the NEC form. That goes on, on an attorney form, which is a miscellaneous under the attorney box. That's the only time we really deal with that. Other than that, if the attorney hired another attorney as a co-counsel, then that becomes a 1099 situation. So those people get them. The attorneys always get them. Also settlements and fees. It depends. In personal injury, the settlements, what were they for? What were the client settlements? If it's part of a legal agreement and there were attorney's fees in that, you need to send the 1099. You see how this gets crazy? I do have a decision tree that I'll share in the article so that you can kind of follow along. If this, if that, yes, no, whether it gets a form, I think that'll be easier than going through all the scenarios. But it's definitely important to track and process properly. Now, rule of thumb is when in doubt, send it out. You didn't hear that from me, but that's, that's one of the, the rules we kind of go by. But the most important thing is to stay organized, get ahead of this. I can't tell you how much you're gonna have a better 1099 season is to get ahead of it. Use accounting software, maybe one that tracks and generates 1099s. It's gonna save time and reduce errors. No longer can you go buy that package at Staples and process that out. Mentioned that last week. Double-check your information. You can validate the W-9 forms, make sure that the numbers, the TINs are proper, those tax ID numbers are correct. Educate your contractors, you know, tell them I have to have this, I have to have this W-9. Always, if you're in questioning, I think consult a tax professional, that's your best bet. So managing 1099s doesn't have to be overwhelming. We're getting it ready now, preparing now for the season. And I'll tell you right now that it's gonna make you much happier. Use Keeper. Keeper's amazing for this feature. You can actually track and tack and, and check off the boxes. It's an incredible software. So that's keeper. I think it's keeper.app or keep— it's Keeper. You can't miss it. So it's a great account— Keeper accounting software, and you, it'll bring you right there. So on that note, I hope you all have a wonderful day. Bye now. Bye.