Accurate bookkeeping and reporting are crucial for law firms, not only for internal clarity but also for maintaining compliance with IRS regulations. One key step is handling the IRS 1099 form series correctly. While it may seem like extra paperwork, properly managing 1099s ensures your records are accurate and helps you avoid tax issues.
Explore how a 1099 works for lawyers, the rules that matter most, and the best practices that simplify compliance and collections.
How does a 1099 form work for lawyers?
A 1099 form is the IRS’s way of making sure income is reported on both sides of a transaction. If your firm pays a vendor or contractor more than $600 in a year, you’re usually required to file a 1099. One copy is sent to the vendor, and the other is sent to the IRS. This documentation helps confirm that your expenses and the vendor’s income line up. Your firm may also receive a 1099-K form for payments received via credit, debit, or prepaid cards.
How to choose the right 1099 form
There are two main types of 1099s that lawyers may file: Form 1099-NEC, Nonemployee Compensation, and Form 1099-MISC, Miscellaneous Information.
Form 1099-NEC is used to report payments of $600 or more to independent contractors, such as freelance paralegals, expert witnesses, or investigators, who are not your employees.
Form 1099-MISC is for payments that don’t count as nonemployee compensation. You might issue this form for payments such as rent, royalties, or prizes.
5 tips for managing 1099s for lawyers
With a few proactive steps, you can simplify the process, reduce errors, and maintain best practices in financial record-keeping. Here’s how:
1. Collect W-9s upfront
The simplest way to avoid 1099-K headaches is to collect W-9 forms before you pay any independent contractor, vendor, or expert. Waiting until January often leads to delays, missing information, or incorrect forms.
2. Keep detailed records
Maintain detailed payment logs and ensure all W-9s are tied to their corresponding 1099-eligible payments. You can use 8am LawPay to automatically generate clear payment histories. With reporting features such as accounts receivable and trust account activity, it helps you track 1099-K payments and makes compliance easier.
3. Document outreach to vendors
Sometimes, vendors don’t hand over W-9s right away. In those cases, make multiple outreach attempts via email or phone, and keep a log of every attempt. Documenting your effort shows due diligence and can help if the IRS audits your firm.
4. Correct errors quickly
Even small mistakes, such as a misspelled name, incorrect tax ID, or inaccurate amount, can cause significant filing issues. Double-check details before submission and correct any errors immediately if they are found. You can also use LawPay dashboards for invoices, payments, and trust accounts to spot discrepancies early.
5. When in doubt, consult a tax professional
The line between an employee and an independent contractor isn’t always clear. The same goes for unusual payment types, such as settlement bonuses paid directly to a consultant, reimbursements bundled with service fees, or payments to an expert witness through a third-party entity.
Make 1099 filing easier with LawPay
LawPay helps you simplify payments, keep financial records organized, and generate reports, such as accounts receivable, that make reviewing 1099-eligible payments easier. While LawPay isn’t tax software, these insights give your firm a clear view of payments and support accurate preparation for tax filing.
Sign up today and join 150,000+ legal professionals who trust LawPay with their transactions.
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Adrian Aguilera is a Senior Content Writer and SEO Strategist for 8am, a leading professional business platform. He covers emerging legal technology, financial wellness for law firms, the latest industry trends, and more.
Great Job Adrian Aguilera & the Team @ Texas Bar Blog for sharing this story.
