As we approach the end of the year 1099 is always become a favorite topic. First off, what is a 1099: a 1099 is a form that you are required to provide to any unincorporated entity that you pay more than $600 to in a calendar year. The purpose of this form is to make sure that all the people are honest and they’re reporting their income appropriately. So the IRS is going to unofficially make you their watchdog. So you must send out a 1099 to report any payments that you make to someone who is unincorporated. Now when we say someone, it doesn’t necessarily mean an individual. This is anyone who does not have inc or Corp after their name when you write the check. So if you’re sending it to an LLC, a partnership, your landlord, uh, anyone doing some subcontract work for you, those all qualify to be specific.
You should get a W-9 from every vendor that you pay more than $600 to. That’s your proof. Whether or not you should issue the 1099 or not. So unless that check says Inc or Corp back after it on the payee line, you want to get a W-9 now let’s talk about timing for a moment. A W-9 is a form where you’re going to request the name, address and social security number or federal ID number of how that payment is to be issued. If you want to do this, the easy way request that W-9 and require that they give it to you before you give them the payment, they’re motivated, they’ll give it to you much easier at that point. If you wait until later on in the year when your requirements come due, guess what? You’re probably going to have trouble finding some of them or some may be noncooperative.
Even if they’re noncooperative, it doesn’t mean you’re off the hook, but I’d suggest that if you just can’t find someone or you can’t get them to complete the W-9 which they’re required to do by law. If you can’t get that information, have documentation in your area to prove that you tried and to show the efforts that you made. In most cases in the past, the IRS has let you off the hook on penalties for not filing 1099’s when you complete those 1099’s and filed them after all, they’re just looking for the tax from the other side to be collected. So they really want whoever you paid that money to, not you. However, they have been very stringent with penalties in the past few years and have threatened penalties. No, I have not seen the penalties actually come through yet, but it’s probably just a matter of time.
So to be safe, let’s have you get that W-9 right off the bat before you issue the payment as a manner of how you write out checks to your vendors. Uh, go ahead and get the W-9 ready have a little stack of them on the counter. Uh, keep them right by your checkbook as a reminder to get that information before you issue the payment. The next part at your end that your job will be very easy if you’ve collected those W-9. I also highly suggest that you get the email address. Along with that, you can issue the 1099 via email. If you have to do postage, it can, it’s going to cost you a little bit more to do. So it’s much more effective, it’s faster and it will make things a little more streamlined for you if you can issue that 1099 via email instead.
So collect W-9’s and emails to save yourself some trouble if you have any questions about issuing 1099’s we’ve got several other posts out there about who should get one and how to determine that. But the safest way, collect the W-9 before the payment. Keep record. And also make sure that whoever you write that checkout to is the same name as is on the the W-9. So for example, if somebody is doing business as a, let’s see, it’s ABC Corp inc. um, don’t write the check out to Joe Smith who’s the owner of the company. That’s a whole different variation and you’ll need a W-9 from Joe Smith since that’s who you made the payment to. So let us know if you have any questions and good luck at keeping up with 1099’s have a great day.
Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.