If you are a business owner, wading through what is required for your annual Form 1099 tax filing can feel daunting. Three of the most common questions are:
- When should W-9s be requested from vendors?
- When should 1099s be issued to vendors?
- What are the best practices for avoiding potential problems in 1099 reporting?
No matter how large or small a company might be, the answers to these questions are essentially the same—and may also help that business avoid costly financial penalties.
Sweep Together Vendor Details with Form W-9
To obtain the information that you’ll need to complete the Form 1099-MISC, you’ll first need to gather some basic information from your vendors such as the payee’s name, address, and Social Security number (SSN) or taxpayer identification number (TIN). Once a vendor completes a Form W-9, you maintain it in your files; there is no need to send it to the IRS.
When your business onboards a new vendor, the process should include completion and receipt of a W-9 prior to making any payments to them. Then, the vendor is incentivized to complete the Form W-9.
Organize Form 1099s
Payments made in the course of business may require the filing of a Form 1099. All types of businesses—including self-employed individuals—are required to issue 1099s, and Form 1099-MISC is the most commonly issued form. Businesses need to issue a 1099-MISC to each person or company it has paid $600 or more during the year for rent or services (excluding W-2 employees). Various exceptions that do not require payments to be reported on a 1099-MISC include:
- payments for merchandise,
- payments to corporations, and
- rents paid to real estate agents.
Dust Off Common Filing Issues—Before They Occur
Penalties for Form 1099 reporting errors are on the rise. Plus, mistakes usually cost money and wasted time in re-completing these forms. The three most common 1099 filing issues are:
- Incorrect names, addresses, or taxpayer identification numbers. Enforcing vendors to complete their W-9s now pays off as those W-9s should provide the correct information.
- Typographical errors. Be diligent about spelling, formatting, and the numbers themselves.
- Untimely filing of forms. Be sure to distribute and file information returns by the proper deadlines.
Mop the Floor with Help from CRI’s Tax Professionals
Businesses should develop an integrated process that collects relevant information from vendors—and then flags vendors at the end of the year for Form 1099 reporting. If you have questions or would like assistance creating a process for your business, then contact CRI’s tax team.