How should a business prepare for year-end W-2s and 1099s?
The work happens before December. By the time you’re ready to issue forms in January, the records either exist and reconcile or they don’t. Businesses that scramble at year-end usually skipped collecting documentation throughout the year.
Start with W-9s. Every contractor or vendor you’ve paid should have a current W-9 on file before you ever send them money. The W-9 gives you their legal name, business name if different, tax classification, address, and taxpayer identification number. If you waited until December to ask, you’re chasing people for paperwork while they’re on vacation. Pull your vendor list now and identify anyone missing a W-9 or whose information may have changed.
Pull a contractor payment report for the year. Any unincorporated vendor you paid $600 or more for services needs a 1099-NEC. Attorneys get a 1099 regardless of entity type. Rent payments to landlords go on a 1099-MISC. Run the report by vendor and confirm the totals against your bank records. Payments made by credit card or third-party processors like PayPal don’t go on your 1099 because the processor reports them separately.
For W-2s, verify every employee’s legal name, current address, and Social Security number. People move, get married, change names. A W-2 sent to an old address or with a transposed SSN creates problems for the employee and corrections for you. Confirm this in writing before payroll closes out the year.
Reconcile your payroll liabilities. The wages, federal withholding, Social Security, Medicare, state withholding, and unemployment amounts on your W-3 should tie to your quarterly 941s and your state filings. If your year-to-date payroll report doesn’t match what you actually deposited and filed, find the discrepancy now. Common issues include reimbursements run through payroll that shouldn’t have been, owner draws categorized as wages, or third-party sick pay not yet recorded.
Review your reimbursement policy. Under an accountable plan, employee reimbursements for mileage, supplies, or travel are not taxable wages and don’t appear on the W-2. Without an accountable plan or proper documentation, those reimbursements become wages and have to be added to taxable income. Decide which side of that line you’re on before W-2s go out, not after.
Clean books make all of this faster. Full-service bookkeeping with monthly reconciliation means the vendor totals are already accurate and the payroll accounts already tie out, so year-end becomes a verification exercise instead of a reconstruction project.
The filing deadlines are January 31 for both W-2s to employees and 1099-NECs to contractors and the IRS. Missing those deadlines triggers penalties per form that scale based on how late you file. If you’re running small business accounting, bookkeeping and tax services in Jacksonville, NC, the goal is to have the records in shape by mid-January so the forms go out without a rush.
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