As a small business owner, there are so many ‘small’ things to keep track of with ‘large’ consequences attached if you drop the ball (or simply aren’t aware of a particular requirement). At Joy Accounting, we have expertise in these requirements so that you can focus on what you are good at – building your business – while we take care of the details that ensure your company hums along smoothly (and without unexpected calls from the IRS!). Today’s post on the ‘W9/1099 dance’ is from Adrienne Kaylor, Lead Accountant at Joy Accounting. Enjoy!
What You Need to Know for the W9/1099 Dance
As accountants, part of our job is to be sure we track the many moving parts related to running a business. Often, business owners are doing their best to keep up with the important items, and invariably some of the smaller pieces get lost in the shuffle. Collecting W9 forms from vendors definitely falls into this “smaller pieces” category. However, if you are facing a fine for not properly issuing 1099’s to your vendors, it will seem anything but small!
So why are W9’s so important? Because they are necessary to obtain the correct information for you to properly issue a 1099 to certain vendors at year end. The 1099 is also submitted to the IRS, which then uses it to track income for each Tax Payer Identification Number (i.e. SSN for individual/sole proprietor or FEIN for LLC/Corporation/Partnership). If your vendor reports income received from you, but you did not submit a 1099 to the IRS, you could potentially face fines.
As of 2017, the IRS requires 1099’s to be issued for payments equal to or exceeding threshold of $600 during the year. Ideally, you would get the W9 form before issuing your first payment to the vendor, even if it’s less than $600. This is because you may pay that vendor again, later in the year, putting the amount over the $600 threshold.
The most common are independent contractors (such as marketing professionals, accountants, web designers, etc), lawyers, and rent to landlords. Payments that do not require a 1099 include merchandise, utilities, freight, or rent made to a real estate agent. Generally, the IRS does not require you issue a 1099 to a vendor if it is a corporation. Before you issue 1099’s, it’s always best to check directly with the IRS to brush up on the most recent requirements, in case there are recent changes.
If you are a business owner who wants to get these small (but critical) items off of your plate, it may be time to enlist some help from a specialist like Joy Accounting Services!