1099 Advice – Part 2

Part 2 of this 1099 Advice series continues to explore some other possible tasks to consider in preparation for the 1099 season for the small business owner. Keep in mind to never take the 1099 obligations lightly because, like payroll tax forms, your small business is declaring payments to other entities.

So here are some thoughts for part 2 of this 1099 advice series:

• Give yourself plenty of time to complete the entire process of the 1099 obligations each year.
  • Hire a contractor to assist with this if need be.
  • Try to obtain all W-9 forms from all vendors you have submitted payments to by simply having each vendor fill out a W-9 form as you hire them throughout the year.
  • It is best to have your bookkeeping closed for the entire tax year declared BEFORE actually determining which vendors are candidates to receive a 1099 form. This closing of the books can possibly be more cumbersome that predicted, so be sure your books are up to date and all problems resolved as you work them throughout the year.
• Separate payments to vendors for materials versus labor.
  • As of the time of this writing, vendors are candidates for 1099 forms if you paid them for labor only OR paid them for BOTH materials and labor. Vendors are NOT candidates for a 1099 form if you paid them ONLY for materials.
  • However, if you have a labor-only type of vendor but reimburse this person every once in a while for materials purchased, then it is usually best to exclude these materials reimbursements from their 1099 form.
• What if the January deadline has passed and you forgot to file a 1099 form for a vendor?
  • It is best to submit a late 1099 form and you can also process the corresponding 1096 form just for this late 1099 form as well. Keep in mind that the IRS may impose late-filing penalties on your small business for this late declaration.
• Vendors that list foreign address on their W-9 forms.
  • Filing a 1099 form for these type of contractors may depend on where the work was actually performed. However, I would strongly suggest you contact the IRS about any specific foreign address issues declared on a W-9 form and adhere to the guidance given by the IRS at that time.
• Are all of your W-9 forms from all vendors up to date?
  • Sometimes vendor information changes throughout the year (and sometimes the vendors may not inform you) for reasons such as:
    • Address changes
    • Business name changes (be sure you always submit payments to your vendors as per the exact business name stated on their most recent copy of their W-9 form you have on file).
    • Vendor business structure changed and therefore their tax ID number (such as the EIN) changed as well.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.