The foundation of 1099 preparation is having the right information before you pay anyone. Collect a W-9 from every subcontractor before making the first payment. The W-9 gives you their legal name, tax identification number, entity type, and address. Without this, you’ll be chasing down information at year end or filing 1099s with incorrect data that creates problems for everyone involved.

Not every payment requires a 1099. Credit card and PayPal payments don’t need to be reported by you because the payment processor handles that through 1099-K reporting. Payments to corporations are generally exempt, though attorneys and medical or healthcare payments are exceptions. Reimbursements for materials that a subcontractor purchased on your behalf can be excluded if you track them separately from labor payments.

In your accounting software, track payments by vendor name. Every payment to a subcontractor should be recorded under their name in a subcontractor expense account. Don’t lump all subcontractor payments into one general category without identifying who received each payment. At year end, you need totals by person or company, not just a total for all subcontractors combined.

If you’re paying a subcontractor for both labor and materials they purchased, separate these on your invoices and in your records. The labor portion counts toward the 1099 threshold. Materials reimbursements where you’re essentially paying them back for supplies can be handled differently if documented properly. This matters most in construction where subs often pick up materials and bill you for them.

Run a vendor payment report monthly or quarterly to see where you stand. Waiting until January to figure out who crossed the $600 threshold means scrambling to find W-9s and payment records for people you paid nine months ago. Catching it mid-year lets you request missing W-9s while the relationship is still active.

Keep the W-9 forms organized digitally. When it’s time to prepare 1099s, you need easy access to the TIN and address for each vendor. A folder in your file system or accounting software works. What doesn’t work is a stack of paper W-9s in a drawer that you have to dig through every January.

The $600 threshold applies per vendor per year. If you paid someone $500 in March and $200 in October, that’s $700 total and requires a 1099. Your accounting software should make this easy to see if payments are coded correctly to the vendor throughout the year.

For business owners who use multiple subs on each project, consistent tracking is essential. Set up each subcontractor as a vendor in QuickBooks or your accounting system and code every payment to them. This makes 1099 preparation straightforward instead of a January crisis.

Accurate 1099 reporting ties directly to your business tax preparation. The IRS matches the 1099s you file against what your subcontractors report on their returns. Errors create notices and potential audits for both parties. Getting the tracking right throughout the year prevents these headaches and keeps your records clean for tax time.