563 Profitable 1099 Work! A Guide for Accounting Firms

Today, the bane of every US accounting firm's existence. 1099s. The best way to turn your busy season on its head before it has even begun. If you are not in the land of the free, nothing we're talking about today will make sense to you. But if you are, you know just how much 1099s are just a. A big, ugly stain on your annual calendar. I don't care what stain stick, what little squirt, you got to get that out. It sucks. But there's a spectrum of how sucky 1099 work can be. And I could tell you in my accounting firm, the firm that I bought, it was about as bad as you could imagine. But by the end, I think we were in a pretty good place. So today I want to run you through practically how I navigated this. The best stuff that I've heard from other firms since then, but then also tell you about the very best tech to solve the 1099 problem as crowdsourced from several hundred accounting firms. Okay, this is an important one. No running from 1099s. Come on in, let's talk about it. Yeah, here's the thing. 1099s are one of those things where people are like, isn't there better technology for this? And the answer is, you're kind of, sort of, maybe. But the main thing most of us are missing is a system, is a process, is nailing down the expectation with clients. This is one of Those things where 1099s can take on a different life, a different meaning with every single engagement, and is a great example of the trap that is Sally. Oh, that blessed old girl, Sally. Same as last year. This doesn't just apply to 1099. This applies to any project in your accounting firm. If it's simply left to Sally, look at the prior year file and figure out how to do it. And there's no, like, rhyme or reason for why or how work is being done the way that it is. That is a recipe for inefficiency, not getting paid very well for doing what you're doing and for a lot of really important information walking out the door. Anytime a staff person leaves, every project becomes this little archeology initiative where instead of rocking up and being like, here's how we're going to do it. We're like, let's. Let's turn back time. Let's turn back the pages. Let's see, how did we do this one last year? Rather than just being like, okay, let's get the work done. Because we know how to do it and we've agreed upon how it will be done with the client. That is the better path. You know, quote the way that it has always been done, or saying, well, this is how we've always done it in the past. Not a reason to do anything. Right. A lot of you went out and started your own firm because you were stuck under the weight of that, of how things have always been done. So let's not do 1099s the way that they were done last year. Let's make an intentional plan and maybe even make some money on this stuff. I actually made pretty decent money on 1099s by the end. So what we can all agree that we don't want is to have to do 500 clients, 1099s, and most of them have one 1099, and a lot of them have three 1099s. And it is thankless, loveless work that you just can't get paid that much for. That's what most of us have stumbled into. And in my firm, we had something like 700, 750 business clients. And the process for working out what needed to be done was literally go back and figure out whoever you did them for last year and send out emails to a few other clients to see if they want any help with it. It was this ad hoc, figure it out for yourself sort of thing. And everybody chose their own adventure on how the work got done. And honestly, this is like how most annual work in all accounting firms gets done. What did we do last year? Go have a conversation with the client, do it again this year. But one thing we don't measure when we approach work this way is just how much time we spend figuring out what the work should be, what to work on, what we need to do, that is work. I mean, the greatest example of this is the time we waste on not only document gathering, but going back and figuring out what documents we already have and making sure something didn't get submitted some other way so that you don't go and ask the client for something you already have and look like a dummy. Like, that's not even the asking. That's like the figuring out what the correct ask is, which is tremendously time consuming. 1099s. It's like one step before that, figuring out, is the client even expecting us to do this? Do they normally do them themselves, or do we have to hop in and do it for them? The right answer here is, and I will fight you to the death on this, the right answer Is letting the client decide each year. Because the fact that they made one decision last year doesn't mean it's the correct decision this year. If you have a business, you might have to issue 1099. I don't care how big or small your business is, Somebody has to go in and figure that out. So you tell me, client, are you going to do that or do you want me to do that? That's a question that has to be asked every single year. And the easiest way to do this is putting a standardized proposal on blast. 1099 are one of those things where we were not like, value pricing 1099 work. I was not sitting down and being like, how much is this problem worth to client? And like doing bespoke pricing. No, no, no, no, no, no. We had a lot of clients that were on monthly engagements where 1099s were just part of it. But for everybody else, where it wasn't crystal clear who was on first. I had a proposal template that had three tiers. And this is actually not how I recommend doing three tier proposals for your main work. But we're talking about 1099s here, which are just a distraction. We just want to get them done without losing our shirts. I had a single template for 1099 with three tiers, and the three tiers just differed on scope to a degree. They differed on service deliver. It was scope. And so the client would get an email with the link to the proposal, and I'll walk you through what each of those three tiers were in a bit. But the big thing that we got right here was everything else that was in that email. This isn't a question of am I going to get paid to do this work or not. I would say it is a question of how do I put some of the onus back on the client to handle the simple stuff themselves. Because the reality is, when I've got a team of 40 people and I'm looking to get an effective hourly rate of 150 to 250 bucks an hour, it's going to be real hard to charge somebody what I need to charge them to go through their accounting file, figure out what 1099s are needed, get to the end and realize, oh, we only need one 1099. Put together a single 1099 form, share a copy with the client, and then say, here's your $680 invoice. They're like, are you hecking me, brother? Do you know how long it would have taken me to write those words into that 1099 form, and I'm like, no. But all the. The accounting ledger review and all the other gymnastics we did, accounts don't understand that that is the worst possible project that I could find myself wading into. And so they need to have a degree of understanding of the process and in my opinion, the bar to enter, like, the bar for me to do that work for them, it just has to start a lot higher than most of us normally set it. So this email goes out to all my business clients. And the email says, basically, here's the thing. There are these things called 1099s. Don't know if you ever heard of them. Here's in one or two sentences what they are and in one or two sentences what the penalties can be for not getting this stuff right now. This is a great example of an aspect of tax compliance that is like, okay, but does anybody really ever crack down on this stuff? It is in the I really don't want to give a hoot hall of fame alongside cost segregation study. We're all engineers now. Just one of those things in tax work where it's like, I have never gotten a notice for that. I've actually heard, though, in the last couple of years from a few accounting firms who were like, we actually did get notices for 10, 1099 stuff because the penalties are, like, shocking. Like, they really put the fear of Luca Pacioli in you. If you don't file your 1099s, you get all the deductions taken away, plus penalties. Anyways, we send this email to clients. It outlines what 1099s are from a very high level, what the penalties can be, and it gives them two options. It says, you own a business, so you have to figure this out whether or not you're required to issue 1099s. Here are your two options. Here is a very generous guide that we've put together to help you DIY it. That is. The first option is you figure it out with the help of this resource that we've developed and given you for free. Aren't we so nice? The second option is, you don't have to fuss with that. We'll do it for you. This is super, super important. It applies to 1099. It also applies to other areas of the business, particularly around work that we don't want to do. This is a biggie. The better that we make the free resource, the more we invest into that, the higher the bar to entry for paid services can be. So if I'm Going to do a super lazy free resource that is not really all that helpful and like withhold some information then that kind of frames our paid offerings as like that kind of sucks. Like you're kind of just paywalling the secret to get us to go and like do your paid thing. Like that's lame. As opposed to if I give them a really good free resource, it's got like everything that they need, they will see like, okay, there's actually a little bit to this. I actually got to go through and run some reports in my accounting system that I maybe don't understand also. Oh, just realizing my accounting is actually not up to date. So there's a little more to this than I realized realized. And then they got to figure out the forms and all that stuff. But at the end of the day, it's not rocket surgery. 1099, like it's among the more simple things that we do, right? So a client, if they really wanted to and they're motivated, they could figure this stuff out on their own. And the more you give them to figure it out on their own, in my opinion, the more permission you have to set the price of entry for you helping with 1099 work much higher. And so what we did, and this is maybe five years ago now, we basically said like, we're not going to touch any sort of 1099 work for less than 500 bucks. Like if we have to lift a finger on this starts at 500 bucks. And this had exactly the desired effect. The cheapskates who are like, I'm not going to pay $500 for you to do 1099. The cheapskates. We could say like, okay, well here's the free path. Like, here's a bunch of really like the best resources you have ever had to help you do this yourself. Here they are and they don't cost you a thing. To me, it's like with these free resources that I feel like I have permission then to charge what need to charge for this work to actually be worthwhile for us. So this gets us to that three tier proposal. Then what are the options if they do want us to do it for them? We literally just called this 1099 Prep 1, 1099 Prep 2, 1099 Prep 3. This was our internal vernacular for it in the firm. It's what we called it in our quote unquote service library. If you are familiar with the lore of this channel and know what that means. But we called it, I don't know, I, I can't Remember, if we called it that externally or not, but internally, that was what, how we talked about it. There's just three levels. At level one, 1099 prep one, it was up to the client to figure out who 1099s needed to be sent to. And then they would provide my firm with that information in a spreadsheet template that I would give them. So the client gets the spreadsheet template actually automatically on. Proposal acceptance is a thing that you can build downstream from your proposal tool if you have one, where if somebody selects that first tier in the email confirmation that they get, they get the spreadsheet and all the instructions that the client should need to be able to correctly complete the spreadsheet, then we get that spreadsheet back, and it is in a format that we can import directly into our 1099 software. And then all that stuff gets filed. Sometimes it's that easy. Sometimes you gotta go do a couple manual things, depending on the states. But we made them give us that information in a prescribed format. And they went out, they tracked down the W9s. They figured out what 1099s need to be issued. We didn't weigh in on that at all. That was the first option. The minimum point of entry for any of these, or actually for that first tier, was 500 bucks. And then there was an escalation based on the number of 1099. So I think every tier had a starting price that included the first ten 1099s. And then, like, each of the next 50 after that were some additional amount. I don't remember what it was, but. So if you had 15 1099s, if you had 4000 1099s, it was just a flat additional amount for that next 50. And that flat additional amount was not a huge amount for that first package, but was a much bigger amount for the third package. So first package is the client just submitting on a spreadsheet that we gave them them. Hey, do you enjoy managing your it? Trick question. Of course you don't. That's awful. You got better things to do than to be playing it. Night Janitor Kay. That's where this episode's sponsor, Farido. They can help. They will be your entire IT department. Because you know what? They do it for hundreds of other accounting firms. In fact, they only do it for accounting firms. Compare that to hiring the IT guy down the street. Oh, I am speaking from experience here. Hire the IT guy down the street. And he comes in and we're like, yeah, here's the problem. And he's like, what on God's green earth is this app, man? And I say, well, this CCH engagement. And he says, okay, give me a week to figure out how this app works and then I will fix your small problem. That's what you're paying for working with it. Groups that don't just support accounting firms, Barretto, they know their stuff, man. This is all they do. This is their lives. They'll migrate you over a weekend. And I actually recently learned they have. They've had like this five minute sort of support guarantee or something like that. They said average response time from support, like 24,7. You can call. Average response time was less than five minutes. They actually told me recently average response time is now less than 60 seconds. 24 days a week, 7 hours a day. 24, 7. That's a bad joke to make. That's. That's not good. 24 hours a day, seven days a week. Verdo. They will also do your WISP 500 bucks flat fee. They'll do the required security thing that you have to have as a tax firm in the US and they'll do all your hosting. Stop paying Thompson. Stop paying Drake. Don't pay the provider of the software for hosting. You can get it from Verito way faster, way cheaper. I know a ton of firms that are weirdly like raving fans of Verito. Honestly, like, it's a weird thing to be so excited about, but if you're getting that it sorted out for 2026, man, like, now is the time to do it. Learn more about Verdo down at the link in the show notes. Tax peeps, listen up. Do you have a tax workflow solution yet? I'm not talking about Graham Pappy's little auto scan, the awful intake OCR thing that comes with our dumpy old tax software. That's not what I'm talking about. There's a new crop of AI tax workflow tools that are doing some really, really cool things. One of the leaders here is this episode sponsor, Sorband. They were one of the first to this. They do a really, really good version of automated 1040 intake. A tremendous amount of the time spent during tax season is just chasing people for docs and like building out the request lists of all the things that we need. When the client emails and they're like, what do you need from me? And you go back to the prior year file and you look at what you already have and you just can do all that stuff. Sore band, man. It wipes out all of that complete no brainer. Tax workflow tools like this is not an exaggeration or honestly like a must buy right now for tax firms. I say they have been for the last like two years and I just keep getting better. Sorban also, they are working on pushing the data to your tax software. Really hard problem to solve. They're working on it. They're also working on automated delivery. So ingest the tax return and then gives the client like a super smooth signing and sort of to do list experience once the return is actually done. Really good product. Know a lot of happy users. That's Sorban. If you do more than a couple hundred ten forties a year, definitely check out Sorban link down in the show notes. Second package is us going into the client's accounting ledger. And you got to be really careful here to make clear this does not include any sort of bookkeeping work or cleanup work. If we're hopping into this stuff on, you know, January 9th, in all likelihood the client's books are not like done and closed through 1231. So we got to be real clear we are going in to do this work. But ultimately it's either up to you or a totally different engagement for us to get the books caught up. Which I mean could take us down a whole other rabbit hole of like the last thing we need to be doing is clean up work for clients during busy season. That second project or that, that second tier. In the three tier proposal, if they choose this, we're going in and figuring out what 1099s need to be issued. But then it is ultimately up to the clients to go out and chase down those vendors for W9s. If they don't have them, Spoiler alert. They don't. They just don't. You can take your automatic withholdings high horse and send it to the glue factory because that's people should, but they don't. So the client goes out and gets all those W9s and then we put together the forms. Now, minimum point of entry for tier two, big step up from 500 bucks. I don't remember what it was, but I make it 1500 bucks. You're having to do the archaeology of going through the accounting software, figuring out how many 1099s need to be issued. And be very clear, there's a world where you go in and you do this and the conclusion is no 1099s need to be issued. That work still needed to be done to get to that conclusion. Right. That is tier two. Only difference on tier three and this is our very concierge one is we, our firm would actually do the outbound to the recipients to get their W9s. And it is shocking to me how easy this is that I can task a 20 something junior staff in my firm to start dialing for W9s. The vendors of my clients and people will complete W9s and send them into our accounting firm. Like, I don't know that that's not a thing that most people should be willing to do. But our clients are giving us permission to reach out to these people. And we had a few people who were probably smart and they were like, here's the thing, I hear what you're saying. I'm going to send W9 to the company that I worked with and let them send it to your accounting firm. Great. If they want to do that, that's totally fine. That's probably what I would do. I mean, if somebody just gives me a call, they're like, Give me your W9. The threshold for them being entitled to to be something more than they know my name and what accounting firm I work with. But it worked. For whatever reason, people were happy to do that. But that was the only difference on the third tier is we were going out and tracking down those W9s. Now, again, another big step up in price for this. We're talking 2500, 3500 bucks. This is a done for you service. It's for the person that's like, brother, we got enough going on in January. We don't have any extra minutes to spare to do this. I will just catch you a check and you guys handle it. And it is like most things accounting, where you'll be surprised how many people are actually willing to like happily cut that check. But you don't know who those people are until you let them self select into that. This is the whole thing behind three tier pricing is as long as you're only giving people a single price for anything, you don't know the people who would happily pay twice as much. You only know the people that don't want to pay that single price you gave them because nobody's raising their hand and being like, hey, can I pay you more? Hey, can you actually do more of this for me? Can you make it more concierge and I'll pay you three times as much. We don't know who those people are until we put multiple options in front of them. So first tier was the client just having to fill out a spreadsheet with all the info. Second tier was us going into the accounting file, figuring it out for ourselves. But then the client getting W9s third tier was us going out and getting the W9s. And we went from just charging flat hourly for 1099 work and then having to mark it down oftentimes. Or what I found out was happening is we had all these, these itty bitty clients where somebody would go out and check the accounting file and figure out if any 1099s were needed. And if they weren't, that work would never even get invoiced or that whip would just kind of live out there forever. And oftentimes the clients don't even know that we did that work. And it's like this ghost time that maybe gets rolled up into a future invoice, but the client didn't even really agree to it upfront oftentimes. And so if I'm lumping that into an invoice, like, it just, it gets messy. And the way better way to do this is with that boilerplate email, a good free resource, and a 1099 proposal template where they opt into one of those three options and then when they pick one, they get an automated email with all the information that they need. Most relevant on the first tier, where they're going to be the ones filling out the spreadsheet. Less relevant on the later tiers, where I guess we got to make sure we've got access to their accounting and all that. But this is infinitely more turnkey than having to go back and do this archaeology project on every single client to figure out what's been done in the past. This work actually got profitable, believe it or not. And 1099s are not the only example of these little trivial things in our firm where it's like, this is such a small thing. How am I ever going to get paid for this? I really don't want to do this. It's a great example of where putting up a great free resource gives you more permission to raise the bar for like, the minimum price of stepping in and helping somebody. Now, last, the tech, the apps. There's actually a huge number of 1099 apps out there, but I'm shocked at the, like, the level of concentration. Is that the right way to put it? I was shocked at, like, how many people use the favorite and the favorite, honestly, by a mile here. And it's not, I don't even like saying it, the favorite. It's Track 1099. It used to be called Track 1099. Now it's called Avalara 1099. Avalara bought them a couple of years ago. I'm not really an Avalara guy. And acquisitions are not usually a good signal for a platform going in a good direction. Right. But I'm, I'm shocked. And the people I really trust for this feedback are the ones inside of my, my private community. 700 firms in there, very, very progressive firms. I was shocked at the huge percentage of people that use Track 1099 much more than any others. The runners up are probably tax 1099 and tax bandits. But so many people that are just perfectly happy with track 1099. It's not fancy by any means. It is cost effective and it kind of gets the job done. Now a interesting bit of nuance here is a really big part of the process here is obviously going through and figuring out who needs 1099s, but also then tracking down all of those people for W9s. This is a weird one. So keeper now called double, which is like a month end bookkeeping, like month end close automation platform. People absolutely rave about the year end 1099 workflow inside of. I'm, I'm going to call it double because that's what it's called now. And it's able to solve this problem in a way that we haven't really had an app solve it before because we've had, I mean like bill.com how many years has bill.com had like a 1099 and a W9 workflow? But it absolutely sucks. Double can do this really, really well because the platform itself is connected with your client accounting ledgers and it can see every single transaction. And so Keeper has its own process where you click a button and it combs through the entire ledger to identify anybody that needs 1099s or at least like the short list, right? And then you go out and you're figuring out like, are any of these corporations or. The one thing it doesn't catch and QuickBooks doesn't either is journal entries, because QuickBooks doesn't treat them as payments really. But you can run those reports inside of Double. But then with Double, you can also push out W9 requests to all the people that don't have W9s. And then in the end you can export everything, the W9 data, the payment information, all of that to a report that can then be directly imported into Track 1099. When I look at the entire tech ecosystem for accounting firms, like people are so into this, they will say like, like this feature alone will make the entire year of using double. Like the price of that subscription. Worth it. Now there's some other platforms that have a version of this now and I would love to see this implementation across other practice management systems. I don't. It probably doesn't make sense to use double if you're not somehow involved in that company's accounting year round. But the. The slickest end to end workflow that I have seen is using double to identify what recipients need 1099s. Also using double to push W9 requests to all of those vendors, exporting all of that and then importing all that into track 1099. It is an elegant solution to a problem that shouldn't exist in the first place. But that's where we're at and that is as good as it gets right now in the year of our Lord 2026. Like I said though, not really a tech thing. It's more a systems thing and an expectations thing and a what am I getting paid for this work? Sort of thing. But if you found any fun little hacks on how to navigate this stuff, leave me a comment, let me know how you do it. Heard from a couple folks online where they have like an add on to their monthly subscriptions. It's like vendor management and they do this year round kind of makes sense. I'm not really an add on guy to be honest. I'm more like a hey, here's everything that you need for this to be done correctly and this is the one option that I'm giving you because like if somebody doesn't get the vendor add on and then we're at year end and we've got all this work to do, like then what? But. But make sure that you're getting paid for it. Make sure that some communication happens with clients each year. That is an affirmative yes the client will do it or yes I want you to do it. And don't be afraid to pick other firms brains about this stuff. Hey, can you show me how you do that thing with double? Can you, can you show me what track 1099 looks like real quick? I heard something good about Tax Bandits. Can you show me how you use it real quick? That stuff's gold, man. To be able to see into how other firms do that stuff. We are. Can you believe we are a couple weeks into a new year already? Yikers. It's gonna be a great year though. I don't know how you're feeling. This is gonna be the one. It's gonna be. It's gonna be better this year. Finally. I know it will. Okay, that's all we got for today. Thanks for coming and hanging. I'll catch you in the next one.