Whether you own a small business or manage tax preparation for small business clients, you understand how important and time-consuming year-end tax filings can be. The best way to reduce the year-end frenzy is to get ahead of tax season, and believe it or not, now is the perfect time to begin.

This may sound surprising—who can think of January when it seems so far off? However, the key to a successful tax season, particularly when filing 1099s, is preparation. The more information your business can collect and verify ahead of time, the smoother the filing and recipient copy distribution process will be at the end of the year.

Now is also the time to catch up on any new updates from the IRS. While new filing requirements and regulations can change leading up to January, being aware of potential effects on your business now will save you from future surprises.

Let’s recap the major IRS changes from last tax year, address potential new IRS updates, and of course, share tips for the perfect tax prep plan.

E-filing Thresholds for 2024 and Beyond

As you may recall, the IRS made a significant change to traditional 1099 reporting and the filing process for businesses and their information returns. This change dramatically reduced the number of forms businesses were allowed to paper file. The previous threshold of 250 forms per type, per business was lowered to just 10 forms total per business.

This required many small businesses to switch from traditional paper filing to electronic filing. For many, this was a dramatic but pleasantly surprising change. E-filing is a simpler, more efficient process. Plus, it opens the door to more accurate filing with an IRS-authorized e-file provider and offers numerous features and record-keeping benefits.

While the IRS has made it clear that they will continue to lower the threshold for business tax filing, with a complete shift to e-filing as the end goal, it doesn’t appear that the threshold will change for the 2024 tax year. However, for businesses and CPAs considering switching to a different e-file provider after the last tax season, now is the ideal time. Moving business and client information and getting familiar with a new application is a great step to take now. Doing this in the summer months can lay a foundation for a smooth transition come January.

Requesting Form W-9: A Precursor to 1099 Reporting

The 1099 Series of Forms helps businesses and financial institutions report a wide array of payments made in the course of their operations. For small businesses, this typically involves payments to vendors and independent contractors. Unlike Form W-2, which is used to report compensation to employees, the 1099 is designed to report payments to non-employees.

While businesses have a clear onboarding process for employees that involves collecting their SSNs and tax classifications, many don’t have the same process for vendors and independent contractors. This is what makes Form W-9 so important! This form allows businesses to request the TIN and additional information from each independent contractor and vendor they work with. Without this information, a 1099 Form cannot be filed successfully, but with this information in advance, filing becomes much easier.

That’s why requesting W-9 Forms is the perfect step to take this summer. It leaves plenty of time to verify and collect this information before the stress of tax season kicks in.

1099 Series Basics for Every Business

Before we dive into the new 1099 forms and filing requirements that may affect your business this year, let’s cover the basics. We've mentioned reporting compensation made to independent contractors and vendors, so now let's go into detail about which form is needed for this and what the reporting threshold is for these payments.

The most common 1099 form that you’ve likely encountered is the 1099-NEC for non-employee compensation. If you’ve hired a freelance worker, or contracted work from another business, and paid them more than $600 throughout the year, you’ve probably filed this form.

Beyond the well-known 1099-NEC, the 1099 Series offers a range of forms covering diverse business transactions. Whether your business is making or receiving payments for various reasons, several other common 1099 forms come into play. Let's explore these forms and the payments that may warrant their issuance or reception:

• 1099-MISC - Miscellaneous Income: You may remember that this form used to be used for reporting nonemployee compensation before the 1099-NEC was reintroduced in 2020. Now, this form is used only for reporting certain miscellaneous payments that total $600 or more throughout the year:
  • Rents
  • Prizes and awards
  • Other income payments
  • Medical and health care payments
  • Payments to an attorney
  • Crop insurance proceeds
  • Cash paid from a notional principal contract to an individual, partnership, or estate
  • Any fishing boat proceeds
  • Section 409A deferrals
  • Nonqualified deferred compensation
  • *In addition, the form is used to report direct sales of at least $5,000 in consumer products to a buyer for resale, particularly when these sales occur outside a permanent retail establishment.
  • Form 1099-MISC is also required to report a minimum of $10 in royalties or broker payments, rather than dividends or tax-exempt interest.

The 1099-K Debacle Continues - Where Does it Stand for 2024?

Last tax year, this form caused quite a bit of controversy.

The 1099-K, Payment Card and Third-Party Network Transactions, is used to report a series of transactions made throughout the year using credit or debit cards, stored value cards (usually gift cards), or payment apps and online marketplaces, also referred to as third-party settlement organizations (TPSOs).

The IRS declared that for the 2023 tax year, the reporting threshold for this form would be reduced from payments exceeding $20,000 and 200 transactions to every transaction exceeding $600. This was, again, a dramatic change. The purpose of this change was to increase financial transparency as proposed by the American Rescue Plan. However, in late November, they rescinded this requirement, giving third-party settlement companies another year to prepare for the change.

So, it’s been another year—where does the IRS stand with Form 1099-K? Currently, based on the information released by the IRS, here is the answer:

For the 2024 tax year, Form 1099-K must be issued for all electronic/payment card transactions that exceed $5,000. Could this change? Absolutely. Is this helpful information for businesses to have in the meantime? Of course!

A New 1099 Form Joins the Line-up

While this form isn’t a filing requirement until the 2025 tax year, the IRS has released a draft of what we can expect for the new 1099-DA. The 1099-DA will be used to report digital assets, or as we are more familiar with, cryptocurrency. This form will be a filing requirement for digital asset brokers, who will be required to report crypto assets as they are acquired, the date of acquisition, as well as the sales and gross proceeds.

The goal of this form is to foster financial transparency and provide insight into a growing industry. Watching this new filing requirement unfold over the next year will be an interesting process.

Final Thoughts

As you prepare for the upcoming tax season, staying informed and proactive is key. From understanding new IRS thresholds to requesting W-9 Forms and anticipating the impact of new reporting requirements like the 1099-DA, preparation is essential. By taking these steps now, you can ensure a smoother, more efficient filing process for your small business or clients. Embrace these changes, stay ahead of the curve, and make the most of the tools and insights available to navigate the ever-evolving IRS reporting requirements.