What Is a 1099 For and How to Simplify Your AP Process
Having worked as an accounting professional for wineries and with CPG brands, I've seen how 1099 AP processes and reporting can become a year-end scramble. When vendor payments aren't tracked properly, the scramble can become a tangle of tax issues, leading to IRS penalties and frustrated contractors.
In this guide, I'll walk you through what a 1099 is, who needs one, and how to set up your AP process to support accuracy and make compliance easier.
What Is a 1099 and Who Needs to Receive One?
If you work with independent contractors, freelancers, or outside service providers, 1099s are a part of your regular course of business. Form 1099-NEC is an IRS form used to report non-employee compensation to the Internal Revenue Service (IRS).
If you pay non-employee compensation — payments you don't withhold taxes from and record via W2 processes — you typically need to issue a 1099 if the payments exceeded $600 in the previous tax year. The 1099-NEC form must be issued by January 31 of the year after the compensation was paid.
You may need to send a 1099-NEC if you made qualifying compensation payments to entities such as:
Vineyard management consultants
Freelance marketing, social media, or design professionals
Independent sales representatives
IT, website, or other tech support contractors
Independent logistics providers or delivery drivers
Independent entertainers, such as tasting room musicians
Seasonal workers paid as independent contractors
Your list may be longer, and missing 1099s can result in IRS penalties and compliance issues, so it's essential to keep track of vendor payments throughout the year.
One of the most important things I've learned through the years: Always request a completed W-9 before issuing a vendor's first payment. It's a simple form you can integrate into your accounts payable processes, and not having to chase down W-9 data in January helps streamline your tax reporting.
Why Tracking Vendor Payments Matters for 1099 Compliance
Without clear, up-to-date records, it's easy to miss payments that meet the reporting threshold, overlook a vendor, or report the wrong amount.
I've seen businesses run into trouble during tax reporting because they didn't separate employee wages from contractor payments, for example, or failed to flag who needed a 1099 at all. When the upfront work tracking vendor payments doesn't happen, it leads to rushed filings, incorrect forms, and potential negative outcomes.
Consider another tax-time paperwork process with a similar requirement: receipts for deductions. If you don't have a process for gathering, documenting, and tracking receipts throughout the year, you might not be confident in the expenses you can write off come tax time. You certainly won't be confident if the IRS comes calling with an audit and asks you to back up those deductions with proof.
I also counsel CPG brands to consider how effective finance processes, including 1099 processes, support good vendor relationships. If your contractors have to chase you for their tax documents, it delays their own bookkeeping.
How to Set Up Your AP Process for Easy 1099 Filing
A smooth 1099 AP process starts long before tax season. Setting up strong AP workflows early can save you hours of administrative time and help you avoid last-minute scrambling. Here's how I recommend building 1099 compliance via some basic best practices.
Start Every Vendor Relationship With a W-9
It's a rule worth repeating: No payments issued until completed W-9s are on file. The W-9 form ensures you have the contractor's legal name, business structure, and Social Security Number (SSN) or Taxpayer Identification Number (TIN) — all data requirements for the 1099.
Flag Vendors Eligible for a 1099 in Your Accounting System
Most accounting software lets you tag vendors who should receive a 1099. Make this part of your onboarding process — I recommend creating a checklist you can work through when setting up each new vendor or contractor:
Get appropriate paperwork signed, such as contracts
Get a W-9
Double check details like addresses and phone numbers
Set them up in the system
Flag them for 1099s
Track Payments Consistently and Accurately
Record every vendor payment in your accounting system and reconcile monthly. Avoid writing on-the-go checks and trusting you'll transfer handwritten ledgers to your system later. Small payments of $50 or even $20 can add up over the year to bring someone above the $600 threshold, so recording every dollar accurately is critical.
Automate Processes When Possible
Use modern AP tools to automate processes like invoice approvals, payments, and vendor categorization to streamline the process. Automation helps reduce human error and significantly saves time for daily cash flow management and tax season.
Review and Reconcile Regularly
Don't wait until January to discover gaps in your records. Conduct regular reconciliations to keep your books accurate. Sometime in the fourth quarter of each tax year, double-check that you have W-9s on file and that vendors are flagged correctly to support accurate 1099 generation in January.
Tools and Automation for Managing 1099 Filings
Manual 1099 filing for small businesses can take up a lot of time, especially if you're dealing with dozens of contractors or vendors. Automating key parts of your AP process helps reduce human errors and can save you time by simplifying 1099 reporting.
Consider a hypothetical example: A small CPG brand has 12 contractors, but it doesn't automate 1099 processes in any way. Come January, the team works overtime to get the right information, find and add up all payments, and manually complete and send 1099s. Compare that to a process where the documentation is already done and the team clicks a button to print a dozen gorgeous and accurate 1099s.
At BBG, we often recommend pairing automation tools with hands-on review. While platforms like QuickBooks Online (QBO), Bill.com, and Xenett offer helpful features for identifying and tracking 1099-eligible vendors, they aren't 100% accurate on their own. That's why we use multiple tools together and always verify data before filing tax forms of any kind.
Here are some tools to consider for accounts payable 1099 setup:
QuickBooks Online. Our preferred method is to leverage QBO's tools to help identify vendors to whom you might need to issue a 1099.
Bill.com. This tool makes it easy to mark a vendor as someone you might need to issue a 1099 to.
Xenett. Easily find all the transactions/vendors related to potential 1099s.
Common Mistakes to Avoid When Filing 1099s
Even with the right workflows in place, mistakes can lead to filing errors. Here are some of the most common 1099 errors I've seen and how you might avoid them:
Missing or incorrect vendor information. Incorrect information, like the wrong TIN number, can trigger IRS notices. Collect W-9s early to ensure you have accurate data, and double-check it when it's entered in your system and again when 1099s are processed.
Not flagging eligible vendors. When vendors aren't marked correctly, you can't rely on automations to capture 1099 payments for reporting. Review vendor lists once a quarter to ensure everything is appropriately categorized.
Underreporting payments. Create a process to capture and track every dollar paid to contractors and vendors.
Late filings. Set calendar reminders to start preparing for 1099s in December so you can get them out early in January.
Streamline 1099 Reporting With Better AP Management
A structured 1099 AP process makes tax filing time faster, easier, and more accurate. Track vendor payments throughout the year, use automation tools to reduce human error, and collect W-9s early to ensure you have the necessary information for tax filings.
Contact BBG for personalized support for all your CPG accounting needs.
Author: Eileen Vasko
Eileen Vasko is an accomplished Accounting professional with over 10 years of experience in financial management, cost accounting, and compliance. As a former Controller at Iron Horse Vineyards, she excelled at managing complex financial operations, including inventory cost accounting. As the Accountant Manager Team Lead at BBG, Eileen specializes in building highly efficient accounting processes including accounts payable/receivable, payroll, and tax reporting. Eileen is highly skilled in using advanced accounting platforms and tools to drive efficient processes.
