If you are like many businesses, the end-of-the-year wrap-up for 2018 was a bit of a blur. How did your business handle the 1099 process? Did you have all of the information you needed at hand, or did the last-minute scramble cause you angst?
Below are some best practices that you can implement today that will make 1099 filing for the 2019 tax season a breeze.
Prepare in Advance
The issue we see most frequently is companies failing to collect vendors W-9’s as business is conducted throughout the year. This makes it difficult (and sometimes near impossible) to produce the 1099-MISC forms at year end. At best, you are scrambling to get the necessary information; at worst, you may be facing IRS fines (as mentioned below) or vendor confusion/irritation. Don’t wait until January to begin this process!
If you have gathered the proper information before the end of the year, your January 2020 will go much smoother. Make it a habit to request W-9s as each new vendor is onboarded so you have all the information at hand when it is needed.
Form W-9 is an informational form you send to each vendor to fill out with the following: Business or individual name, FEIN or SSN, federal tax classification (C corporation, S corporation, partnership, individual/sole proprietor, etc.), and address. This is the information you will need to supply your vendors with a 1099-MISC in January 2020.
To ensure that you have all the information you need to fulfill the 1099 requirements by January 31st each year, we recommend the following:
As part of your onboarding process, make sure to have new vendors fill out a Form W-9.
Before making any payments to outside vendors, double check that you have a W-9 on file for them. If you do not, require them to fill one out prior to paying their invoice. (Your vendors will gladly give you the information you need in exchange for getting paid. If you wait until after they’ve received payment, their motivation to return the Form W-9 is lessened.)
Bonus: It’s good practice to have existing vendors fill out a new W-9 form at the beginning of each new year to keep your data current (this ensures you have all the correct information on file).
If your QuickBooks file is maintained by Sharp Point, you will then forward a copy of the W-9s for all applicable vendors so that we can enter this into the vendor information section of your QuickBooks file.
Information About Forms 1099
Understanding who needs to receive a Form 1099 can be very tricky. We are hoping to make it easier by laying out some of the main points.
You are required by IRS regulations to send a Form 1099-MISC to any independent contractor/non-employee who has earned $600 or more in a calendar year. You will send the 1099 to the entities or individuals whose tax classification is individual/sole proprietor/single-member LLC or partnership. Remember, LLCs may be classified for tax purposes as either a corporation, a partnership, or a disregarded entity. This means that some LLCs must be furnished with a 1099 and some do not need to receive them. You will also send 1099s to all attorneys, even the ones who are incorporated.
All of your 1099-MISC forms must be postmarked or electronically submitted by January 31, 2020 to each individual vendor. Additionally, Copy A of all 1099 forms issued along with the compilation form (Form 1096) are due to the IRS by February 29, 2020. If you fail to correctly file the 1099 forms by these due dates, you may be penalized by the IRS; the amount of the penalty will depend on the time of the delay and the number of occurrences.
If you need any help understanding the 1099 requirements or setting up a process, the team members at Sharp Point Bookkeeping Solutions are ready to assist you.