The Rise of Automated E-Filing: What Every Contractor-Heavy Business Should Know

Who loves tax season?

If you have a contractor-heavy business it can definitely feel like filling out all those 1099s is a monumental headache. Tracking down W-9s. Making sure you don’t miss deadlines. And depending on who you work with you may even need to file multiple types of 1099s each season.

The frustrating thing is that it doesn’t have to be this hard.

As the IRS cracks down on electronic filing, IRS e-filing software is now making managing and filing 1099s easier than ever. And if you haven’t jumped on board yet your business may be missing out.

Here’s what you need to know about automated e-filing software:

• Why Automated E-Filing is Important Right Now
• New IRS E-filing Requirements You Can’t Miss
• How IRS Electronic Filing Software Streamlines Processes
• 5 Things To Look For In An E-filing Solution
• Mistakes To Avoid When Filing 1099s

Why Automated E-Filing Is Important Right Now

First of all, why should you even care about IRS electronic filing software? Isn’t e-filing the same as filling out 1099s online?

There are a few reasons managing and filing 1099s manually is becoming a thing of the past.

The Contractor Economy is booming

As you may have noticed, there are more and more contract workers every year. Right now there are approximately 59 million Americans freelancing or working as independent contractors.

As a business owner that hires contractors, that means your business has a reporting requirement for every single one of those contractors.

More reporting requirements = more paperwork.

Electronic filing is the IRS way of the future

The IRS has been slowly pushing businesses to e-file for years. Right now about 96% of individual returns are e-filed. Businesses that are stuck doing things manually are quickly falling behind.

If you haven’t made the switch to electronic filing by now, it’s only going to get more stressful when tax season rolls around. Finding the best 1099 e-file service can take the manual work out of your filing process and keep your business compliant with less hassle.

Simple.

New IRS E-filing Requirements You Can’t Miss

If you’ve been e-filing for your business in the past, you might be wondering what’s changed?

It all comes down to a few key updates that the IRS has made recently:

The IRS lowered the e-filing threshold to 10 Returns

Back in 2023 the IRS announced that businesses would now be required to e-file any year they reach 10 information returns. Previously that threshold was 250 total information returns.

That means most contractor-heavy businesses will have no choice but to e-file.

Failing to e-file will result in penalties

The IRS isn’t kidding around when it comes to e-filing taxes. Each time you file a late or incorrect 1099 you can be fined anywhere from $60 to $330 per form. Forms filed over 30 days late will incur maximum penalties.

If the IRS deems your failure to file was intentional, you may be fined $680 per form with no maximum.

As mentioned before… the IRS means business when they say you HAVE to e-file.

Automatic E-filing Software Saves Both

Running a contractor-heavy business is already a ton of work. It shouldn’t have to take your team hours every season to manage and file your 1099s.

IRS electronic filing software can:

• Save you time by allowing your team to focus on growing your business versus paperwork
• Save you money by avoiding costly filing errors
• Adapt to IRS rule changes
• Make your entire filing process simple and streamlined

How to choose the right IRS Electronic Filing Software

If your business is moving forward with e-filing this season, keep these tips in mind when evaluating different software options:

1. Bulk Filing

This should go without saying, but your filing software has to be able to handle bulk filings if you work with more than a handful of contractors. You should easily be able to import information from a spreadsheet or your accounting software.

2. Can Verify TINs

The IRS is automated now. If the name and TIN you provide doesn’t match up to their records they will reject your filing. Don’t stress your team out trying to match contractor information yourself. Look for e-filing software that verifies contractor TINs automatically.

3. Easily Deliver Recipient Copies

You aren’t done when you hit the ‘Submit’ button. The IRS requires that all recipients get their copies by the filing deadline too. Make sure your software automates this process for your team whether through paper delivery or digital notifications.

4. Support for State Filings

It doesn’t stop at the federal level. Depending on your state, there may be additional filings required for 1099s. Take the time to evaluate software that allows you to do both at once to make your life easier.

5. Tracks Deadlines

There are lots of deadlines within tax season. Software with automatic alerts and notifications can help take that burden off your team.

Filing 1099s Mistakes To Avoid

Avoid these mistakes and you should be in good shape when it comes to filing all of your 1099s.

Not Asking for W-9s in Advance. Get those W-9s before contractors start work. There’s nothing worse than realizing you missed someone come January.

Forgetting About Your State. Each state has different rules and requirements for filing 1099s. Make sure you cover both federal and state requirements.

Waiting. Procrastinating is just asking for mistakes. The deadline for 1099-NEC filings is January 31st. Start preparing those forms long before the due date to avoid unnecessary stress.

Poor Record Keeping. If you aren’t keeping track of who you paid and when you paid them you’re doing your team a disservice. Good record-keeping is crucial for a smooth filing season.

Summary

To summarize: IRS electronic filing software is the absolute best way for contractor-heavy businesses to save time and money when tax season rolls around.

With more contractors than ever before working with the independent workforce means tons of extra reporting requirements. Electronic filing isn’t going away. If your business isn’t using IRS electronic filing software this season, now is the time to find a solution that works for you.

Whether you choose to build your own process or use a third-party provider, at minimum make sure your filing process is automated to save your team time and headaches.