How to Prep 1099s With AI (The Stress-Free Way)

Every January, the same fire drill: you realize you paid a dozen contractors last year, you don't have half their tax info, and the 1099-NEC filing deadline (January 31) is bearing down. Penalties for late or missing 1099s run from $60 to $330+ per form, and they add up fast.

The good news: 1099 prep is mostly a data problem, and data problems are exactly what AI is good at. Here's the workflow that turns January panic into a 30-minute task.

Step 1: Figure out who actually needs a 1099

You must file a 1099-NEC for any non-employee (contractor, freelancer, vendor providing services) you paid $600 or more during the year by cash, check, or ACH/bank transfer.

Key exceptions — you generally do not issue a 1099 for:

• Payments to C-corporations or S-corporations (with some exceptions like attorneys)
• Payments made via credit card or third-party processors (PayPal, Stripe) — the processor files a 1099-K instead
• Payments for products/goods (1099-NEC is for services)

AI move: Export your vendor payment ledger to a spreadsheet, then ask an AI assistant: "Here's my vendor payment list for 2026. Flag every vendor I paid $600+ for services via check or ACH, exclude corporations and anything paid by credit card, and give me the shortlist that likely needs a 1099-NEC." It'll do the filtering in seconds. Then verify each one. If you're fuzzy on classification in the first place, read our 1099 vs W-2 worker classification guide.

Step 2: Collect W-9s — ideally before you ever pay them

The #1 cause of January stress is chasing tax info from contractors who've moved on. The fix is behavioral: collect a W-9 before the first payment goes out. No W-9, no payment.

For anyone you missed:

1. Generate a clean, fillable W-9 with our free W-9 generator.
2. Send it with a firm, friendly deadline.
3. AI move: Have AI draft the request email — "Write a short, polite but firm email asking a contractor to return a completed W-9 by [date] so we can issue their 1099." Send, track, follow up.

If a contractor refuses, you may be required to begin backup withholding (24%) — another reason to collect W-9s up front.

Step 3: Reconcile what you actually paid each contractor

The number on the 1099-NEC is the total you paid that contractor during the calendar year. Pull it from your books, not memory.

1. Filter your Operating Expenses / contractor payments for the year.
2. Group by payee.
3. Exclude reimbursed expenses and any credit-card payments (those go on the 1099-K, not yours).

AI move: Paste your categorized contractor transactions and ask AI to "total payments by contractor for 2026, excluding credit-card transactions and reimbursements, and format as Name / EIN-or-SSN / total paid." Tracking these all year with the contractor payments tool and expense tracker makes this step trivial.

Step 4: Generate and file the forms

Once you have (a) the list of who needs one, (b) their W-9 info, and (c) the annual total for each:

1. Generate each form with the 1099 generator.
2. Send Copy B to the contractor and file Copy A with the IRS by January 31.
3. If you have 10+ information returns total, the IRS now requires electronic filing.
4. Check your state requirements — some states require separate 1099 filing.

AI move: Ask AI to build you a filing checklist with every contractor, their form status (sent to contractor / filed with IRS / state filed), and the deadlines, so nothing slips.

Step 5: Set up next year so this never hurts again

• Collect the W-9 before the first payment — always.
• Tag contractor payments in a dedicated category all year (or a Profit First job-cost account — see the Profit First playbook).
• Put a recurring reminder on January 5 to start prep, not January 30.

Frequently asked questions

What's the deadline to file 1099-NEC?

January 31 for both the copy to the contractor and the copy to the IRS.

Do I send a 1099 to an LLC?

It depends how the LLC is taxed. Single-member LLCs and partnerships generally get a 1099; LLCs taxed as C- or S-corps generally don't. The W-9 tells you which.

Do I issue a 1099 for contractors I paid by credit card or PayPal?

No. Card and third-party-processor payments are reported by the processor on a 1099-K, so you'd be double-reporting.

Can AI file my 1099s for me?

AI can prep, organize, and draft everything, but you (or your filing tool/accountant) submit the actual forms. Use AI to eliminate the busywork, not to replace verification.

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What tool makes 1099 prep easier?

Use a platform like Holdings that tracks contractor payments year-round, collects W-9s, and generates 1099 forms — so the numbers are already reconciled when filing season arrives.

1099 season is a data problem with a deadline. Collect W-9s up front, track contractor payments all year, and let AI do the sorting and drafting. Start by generating clean forms with the 1099 generator and W-9 generator.