With the end of the year rapidly approaching, there’s one number businesses are just as concerned with as the one occupying the bottom line: 1099.

Companies are gearing up for the annual filing of these documents, but it shouldn’t be too daunting a task for shops that stayed in front of their record-keeping all year. Basically, companies must issue a Form 1099 to vendors or subcontractors that have earned $600 or more during the year.

Issued parties — be they individuals, partnerships, LLCs, limited partnerships, or estates — that don’t file can be assessed penalties ranging from $100 to $1 million.

The annual January 31 deadline is a benchmark for accounting departments to evaluate just how clean the company’s payroll house is. Meticulously tracking every transaction that comes in or out can make for a smooth filing season.

Numbers and Letters

You didn’t think there was just a type of 1099, did you? Much like the tax process itself, how and what a young company files depends on factors such as corporate structure, employee classification, and payroll system. The varying forms include:

  • 1099-C: This is for startups that have debt forgiven by their lenders.
  • 1099-DIV: Startups that turn a profit should look here. This document provides details to shareholders about dividends paid out during the year.
  • 1099-INT: Startups issue this statement for any interest owed and/or paid to their lenders.
  • 1099-MISC: Startups use this form to report payments made to contractors.
  • 1099-K: Startups receive this 1099 for payments received that are processed via a third party such as PayPal or Stripe.

The 1099 requirements are fairly extensive, but few exceptions exist for startups. First, payments to a corporation of an LLC taxed as a corporation generally do not require a 1099.

In addition, any contractor or vendor paid less than $600 in the year isn’t required to receive a 1099. Lawyers are the only exception to this rule; even if he or she is incorporated, you still must send a 1099 if the bill exceeded the $600 threshold. Finally, you do not need to issue 1099s to vendors for any products you purchased.

Preparing each document can be a drawn-out ordeal. Before determining the steps necessary to documenting your earnings, know which form you need or whether you require one at all.

Steps to Follow Before You File

Prior to filing your 1099s, there are a few critical things to know that can help you avoid mistakes or problems. Taking care of these items on the front end will ensure your records are organized and save you time, money, and any inconveniences for your contractors. Check these three tasks off the list before you sit down to file:

  1. Make sure everyone signs in. Always require any new vendor to complete a Form W-9 — consisting of mailing address, tax ID, and filing status — before any payment is issued. Even though the vendor must earn $600 to receive a 1099, it’s a good business practice to have it on hand.
  2. Get international workers acclimated. A study by Statistic Brain notes that more than 2.3 million jobs were outsourced away from the U.S. in 2015. International workers are in high demand, and startup tax professionals need to prepare to account for the surge.If you hire someone who isn’t a U.S. citizen, have him complete a Form W-8 BEN so you can issue a 1099. It’s your responsibility to verify that the vendor is not a U.S. citizen and whether the duty was performed outside the country.
  3. Update your books — always. Research done by CB Insights reports that 18 percent of startups falter due to price/cost issues, while 17 percent are tripped up because they lack a business model. Unattended-to tax and payroll information can factor into both of these setbacks.Keep good accounting records year-round so you have all the information available to easily file 1099s come tax season. Cleaning up any accounting mistakes or tracking down missing information can be a major headache.

Familiarize yourself with the types of 1099s and the rules associated with them. Keeping accurate records will help you streamline your end-of-the-year processes so you can file your 1099s easily when the calendar flips to the new year.

If you’re not sure whether you need to file a 1099 or whether a certain exception applies to you, always seek out a tax professional. Get your internal numbers together so the ones you put on the 1099 seem like a breeze.