Step 1. Identify Your Reportable Payment Types
Review the IRS instructions to determine which payments you must report. For example, you might need to report:
Nonemployee compensation (often now reported on Form 1099-NEC)
Rents
Royalties
Other miscellaneous payments
Tip: Some payments (like payments made to corporations) may be exempt from 1099 reporting. Check the instructions for any exceptions that apply to your vendors.
Step 2. Set Up Custom Categories in Your Records
Whether you use accounting software or a spreadsheet, create custom categories (or accounts) that specifically track payments that require 1099 reporting. For instance:
1099 – Nonemployee Compensation
1099 – Rent
1099 – Royalties
1099 – Other Reportable Payments
In Accounting Software:
Set up these as expense accounts or vendor classes. This helps ensure that every time you pay a vendor for a reportable service, you post it to the correct account.
In a Spreadsheet:
Create columns that capture both the vendor and the type of payment. This allows you to filter and sum totals by category.
Step 3. Record Each Payment with the Appropriate Details
For every payment you make, record the following information:
Vendor Name
Vendor Tax Identification Number (TIN)
Payment Date
Payment Description (e.g., consulting fee, office rent)
Payment Category (select the custom category you set up)
Payment Amount
Step 4. Track the Cumulative Totals for Each Vendor
Keep a running total for each vendor’s payments in each category. This lets you quickly determine which vendors meet or exceed the IRS reporting thresholds (commonly $600, though thresholds can vary by payment type).
Sample Spreadsheet Template
Below is a sample template that you could use in Excel or Google Sheets:
How to Use This Template:
Filter/Sort: At year-end, filter the sheet by the “Payment Category” or sort by “Vendor Name” to easily review totals.
Threshold Check: Use the “Cumulative Total” column to quickly see which vendors have reached the IRS threshold for reporting.
Documentation: Keep a copy of this spreadsheet as part of your records in case you need to verify your 1099 information later.
Step 5. Run a Year-End Review
Before filing your 1099 forms:
Review the Totals: Check the cumulative totals for each vendor in each custom category.
Cross-Reference Vendor Information: Verify that the vendor’s TIN and other details are correct.
Prepare the Forms: Use the information from your custom tracking system to complete the appropriate boxes on your 1099 forms.
https://www.irs.gov/instructions/i1099mec
