Simplifying 1099s: Tactical Steps for Chiropractic & Wellness Practices

January brings chilly weather, a fresh start to the year, and for business owners, it also means tax preparation. If you’re a chiropractic or wellness entrepreneur, one key task on your to-do list is handling 1099s. While it might feel overwhelming at first, with the right systems and knowledge in place, you can confidently manage this responsibility.

In this detailed guide, we’ll break down exactly what you need to know about 1099s and provide actionable steps to streamline the process.

What Is a 1099 and Why Does It Matter?

A 1099 form is an IRS document used to report payments made to non-employees, such as independent contractors, freelancers, or vendors. It’s how the IRS ensures that these individuals report their income and pay taxes.

If you’ve paid someone $600 or more in a calendar year for services or legal fees, you’re required to issue them a 1099 by January 31. If you’ve paid rent to a person or company, those 1099’s are due by February 18^th for 2025. Failing to do so can result in penalties, so it’s crucial to stay on top of this process.

Tactical Steps for Handling 1099s

To ensure a smooth and stress-free 1099 process, follow these tactical steps

1. Track Payments Throughout the Year

Accurate record-keeping is the foundation of successful 1099 management.

• Use accounting software like QuickBooks Online, Xero, or FreshBooks to track vendor payments. These platforms allow you to generate reports listing total payments by vendor, which will simplify the 1099 process.
• If you use spreadsheets, dedicate a column to track 1099-eligible payments, ensuring you log services separately from goods.

2. Collect W9s Early

A W9 form provides the necessary information about contractors or vendors, including their tax ID and business entity type.

• Best Practice: Request a W9 before making the first payment to any contractor or vendor.
• If you’re behind, reach out now. Send an email and follow up with a call if needed. Assertiveness is key to getting responses quickly.
• Store W9s digitally in your accounting software and your digital filing system to ensure easy access.

3. Understand Who Needs a 1099

Not every vendor or contractor will require a 1099. Here’s how to determine eligibility:

• Issue a 1099 to:
• Sole proprietors or LLCs who provided services (not goods) and were paid $600 or more in the calendar year.
• Landlords for rent payments.
• Legal professionals, regardless of their business entity type.
• Do NOT issue a 1099 to:
• C-Corps or S-Corps (except for legal services).
• Vendors paid via third-party platforms like PayPal or Venmo (for business accounts), as the platform will issue a 1099-K.

4. Reconcile Records by December

Preparation in December will save you from January headaches.

• Review payments and ensure all 1099-eligible transactions are correctly categorized in your accounting software.
• Verify that vendor contact information is up to date.
• Merge duplicate entries for the same vendor to avoid errors.

5. Mark Your Calendar for Deadlines

Meeting deadlines is crucial to avoid penalties.

• January 31: Deadline to issue 1099-NEC forms to contractors and the IRS.
• February 18: Paper filing deadline for 1099-MISC (for rent payments)

6. Choose a Filing Method

There are several ways to file your 1099s:

• E-Filing Software: Tools like Track1099 or Tax1099 offer user-friendly interfaces and tutorials to guide you through the process.
• Accounting Software: Most platforms, like QuickBooks, have built-in features to file 1099s.
• Outsource: If managing 1099s feels overwhelming, consider hiring a bookkeeper or tax professional. Ensure they have all necessary documentation by early January.

7. Create a Checklist

Staying organized with a checklist ensures you don’t miss a step:

• Collect W9s from all eligible vendors.
• Verify payment thresholds (over $600 for services, rent, or legal fees).
• Review payment records for accuracy.
• Choose and implement a filing method.
• Issue forms by the correct due date

Pro Tips for Staying Ahead Next Year

• Request W9s at the Start: Make it a policy to collect a W9 before any work begins.
• Set Calendar Reminders: Mark dates for a reminder to collect W9’s (December 1^st). Mark other information collection reminders like January 1 and January 15, and mark January 31 to ensure you have everything in by the deadline.
• Regularly Review Records: Keep records up to date on who you paid throughout the year, so you have the data ready to go after the end of the year. Having up-to-date accurate bookkeeping will help you with this.

Handling 1099s doesn’t have to be a headache. With early preparation, proper organization, and the right tools, you can tackle this task with ease. Remember, staying proactive not only saves you time but also ensures compliance with IRS regulations.

If you’re feeling stuck, reach out to a trusted tax professional for guidance. And don’t forget to subscribe to the Financially Adjusted podcast for more small business finance tips.

Let’s make this tax season your smoothest one yet!