1099 and W-2 Prep: What Small Business Owners Need to Know Before January

As the year ends, most business owners are thinking about holiday plans but January will arrive before you know it, and with it comes one of the most important deadlines of the year: filing your 1099s and W-2s.

Getting a head start now will save you time, stress, and potential penalties later. Here’s what you need to know.

1. 1099 vs. W-2: What’s the Difference?

• W-2s are for employees or the people on your payroll who receive regular wages and have taxes withheld.

• 1099-NEC forms are for independent contractors like the typical freelancers, consultants, or vendors you paid $600 or more during the year.
  

If you’re unsure whether someone is a contractor or an employee, the IRS focuses on control. If you decide when, where, and how they work, they’re likely an employee.

2. What to Gather Now

Start collecting information early to avoid the January rush. You’ll need:

• Legal names and business names (as shown on their W-9)

• Taxpayer Identification Numbers (TIN or SSN)

• Current mailing addresses

• Total payments made during the year
  

If you don’t already have completed W-9 forms for your contractors, request them now. It’s much easier to gather missing information before the holidays.

3. Know Your Deadlines

For tax year 2025 (filed in early 2026):

• January 31, 2026 – Deadline to send copies of 1099-NEC and W-2 forms to recipients and file them with the IRS or SSA.
  

Missing this deadline can result in penalties ranging from $60 to $310 per form, depending on how late you file.

4. Avoid Common Mistakes

• Mixing up totals: Double-check payments in your accounting software.

• Incorrect TINs: Use the IRS TIN matching tool or verify W-9s.

• Missing state filings: Some states require separate submissions, check your local rules.
  

A few hours of preparation now can prevent major headaches (and fines) later.

5. Consider Outsourcing Your Filings

If you’re juggling multiple vendors or payroll systems, it might make sense to let your accountant handle the process. They can prepare, e-file, and ensure everything lines up with your bookkeeping records, saving you from last-minute panic.

Final Thoughts

Getting your 1099s and W-2s in order is one of those year-end tasks that’s easy to put off, until it’s not.

Start early, stay organized, and remember: compliance isn’t just about avoiding penalties. It’s about running your business with confidence and professionalism.