Year-end is the busiest (and most stressful) time of the year for any business that hires freelancers.
Except when you have systems and tools in place to manage it all. Inaccurate filing, missed deadlines, and IRS penalties are just waiting to chew up businesses who treat year-end like an afterthought.
The good news is any freelance-heavy business can breeze through year-end with minimal stress. It just takes the right tools + process.
Here’s what we’ll cover:
- Why Year-End Compliance Is Important For Freelance Businesses
- Tools Every Freelance Heavy Business Needs For Year-End Compliance
- How to Batch Print Tax Forms Without Losing Your Mind
- Common Year-End Compliance Mistakes Businesses Make
Why Year-End Compliance Is Important For Freelance Businesses
Freelancers make up a huge and growing segment of the American workforce. There are currently over 76 million freelancers in the United States and that number is only expected to increase.
Problem is…
Every freelancer who was paid $600 or more by a business in one year is owed a 1099-NEC form filed on their behalf. For businesses hiring dozens (or hundreds) of contractors each year… That’s some serious paperwork.
Besides the paperwork nightmare, businesses also need to be aware of IRS deadlines and the importance of filing accurate information. There’s no excuse for filing late or incorrectly.
So where do tools come into play?
When used correctly, 1099 filing software for accountants makes it possible to batch print tax forms, check data for accuracy, and file everything electronically without the headache. Prepping taxes used to take weeks/months… Now it can be knocked out in just a few days with the right tools.
Businesses who neglect to use tools risk missing deadlines and filing errors.
Tools Every Freelance Heavy Business Needs For Year-End Compliance
But not all tools are created equal. The goal is software and services that save time, eliminate errors, and keep everything organized. Here are the five tools every freelance-heavy business needs for year-end compliance.
1099 Filing & Printing Software
Year-end doesn’t start until you have 1099 software to handle preparing tax forms. Look for software that makes it easy to import contractor information and pushes through creating finalized forms ready for printing or e-filing. Many software options now allow businesses to batch print tax forms for all contractors at once instead of individually.
Features to look for include:
- Easily import contractor data from spreadsheets or accounting software
- Validate contractor TINs against IRS records prior to filing
- E-file directly to the IRS and state agencies
- Batch print tax forms for mailing to contractors
Batch printing will save tons of time when onboarding hundreds of contractors. Instead of printing forms one-by-one, a single print command processes the entire group.
W-9 Collection Software
Here’s something most businesses don’t think about until January…
The worst part of year-end compliance is usually not the filing itself. It’s realizing there’s a giant stack of missing/incomplete contractor W-9 forms. An accurate 1099 can’t be filed without a completed W-9 from each contractor.
The key here is to begin collecting W-9 forms before paying the first contractor. Use digital tools to have contractors fill out and sign their W-9 form online. No more lost forms or people to track down.
Accounting Software With Contractor Tracking Features
Another helpful software tool is accounting software. For businesses paying contractors throughout the year, software that easily tracks those payments is essential.
Ideally, software will also alert when any contractor passes the $600 threshold so it’s clear who needs a 1099 form.
QuickBooks and Xero are just a couple of examples of accounting platforms that have contractor tracking capabilities built-in. The most important piece is ensuring payments are being tracked to the right category from the start.
TIN Matching Services
Incorrect taxpayer identification numbers are one of the top reasons businesses get penalized by the IRS.
TIN matching services allow businesses to match contractor information with what the IRS has on file before ever filing a form. This weeds out any discrepancies long before they become a problem later.
The IRS actually offers a free TIN matching service through their own e-Services portal. However, many 1099 filing applications include this as part of their software platform too.
How to Batch Print Tax Forms Without Losing Your Mind
Batch printing may sound easy, but without the right process it can become a huge headache.
Trimmed down process for batch printing tax forms:
- Prep and cleanse the data. Accuracy on contractor names, addresses, and TINs needs to be 100% before even thinking about printing.
- Use the official IRS approved forms. Box-fulls of the scannable red forms can be picked up from a local office supply store. Printing generic versions will not be accepted by the IRS.
- Test batch. Always print a single test batch first to make sure everything looks correct before running the full job.
- Print recipient and IRS copies at the same time. Most software applications will figure this out automatically.
- Save digital copies. Always save a PDF version of each form printed for the business records.
Common Year-End Compliance Mistakes Businesses Make
The IRS does not play games when it comes to businesses filing their 1099 tax forms. Penalties for late/failing to file can cost anywhere from $60 to $660 per form filed. And that’s for mistakes caught early. Get caught by the IRS and it’s only going to cost more.
Here are some of the most common mistakes made by businesses:
- Missing the January 31st filing deadline. January 31st is the due date for sending recipient copies as well as IRS e-filing for 1099-NEC forms. Past this date and the penalties begin.
- Filing 1099s with incorrect contractor TINs. If the IRS notices mismatching names/TINs they will send a B-Notice. Left unresolved these penalties can fall into the maximum penalty category.
- Failure to e-file. Any business filing 10+ information returns is required to e-file. Submitting paper forms when e-filing is required will result in a penalty.
- Waiting too long to prepare. Year-end should be something businesses prepare for all year long. December is usually when mistakes happen.
Building year-end compliance into regular business operations is the best way to prevent common mistakes. Keep track of contractor payments as they happen. Collect W-9s up front. Verify TIN numbers early. Use software that can do the heavy lifting.
Bringing It All Together
Year-end really isn’t that scary with the proper tools in place to manage freelancers. Here’s a quick recap:
- Use 1099 software to batch print tax forms/email to contractors
- Collect contractor W-9s upfront before paying them
- Track contractor payments year-round with quality accounting software
- Verify contractor TINs to avoid unnecessary penalties
- Don’t wait until December to start year-end prep
The freelance economy isn’t going anywhere. By taking action now to invest in the right tools, any business will save money and headaches when year-end comes around.
