1099 Filing Requirements for Business Owners

Let’s talk today about Form 1099s and what business owners must do to stay in compliance. Every year, business owners have to send out Form 1099s to any vendor that they pay $600 or more for services. It’s an annual requirement, the forms are due by January 31st.

There are a couple of exceptions to this rule. One is you do not have to send any Form 1099s to corporations, so anybody who is a C-corp or an S Corp. They can also be an LLC that is being taxed as an S-corp, and we’ll talk about that in just a second. So the 1099 is an annual form that you have to send to these vendors by January 31st, and there are fines and penalties, if you failed to do so. So how do we get the information that we need to send them these forms? First we have to have some good accounting records to know who we paid, what, during the year. That can easily be tracked in a software like QuickBooks Online.

The other piece that we need is the business’s information. And we get that from what’s called a Form W-9. It’s a really simple form, it’s a one page, easy to fill-out for the vendors. It’s not something that the business itself fills out, you give it to the vendor and they fill it out and send it back to you. All it has on there is the business’s name, address, Federal ID number, but then it also has a section where they check off what type of business they are. They’ll either check off that they are a sole proprietor, that they are an LLC, that they are a partnership, an S-corp, C-corp. They will have all those options to tell you exactly what they are. Now one of the tricks is that under the LLC box, there are couple of different options that they can select. One of them is that they can select that they are an LLC being taxed as an S-corp, and for those we do not need to send any 1099s. So when you get this W-9s back, review them and look to see what type of entity they are, if they are a C-corp, or an S-corp, or if they are an LLC being taxed as an S-corp. You do not need to send them a 1099, so you can cross them off the list. Any other vendor, who is not one of those entities and you are paying $600 or more for services, you must send them a 1099, and there’s lots of software out there to do that, and an accountant can help you do that really easily as well.

The best practice is to get this Form W-9 from the vendor the first time you’re going to send them a payment. Obviously, if you’ve been paying them for a while and you don’t have one, then yes please get one, that way you have that in your files. But anytime you’re bringing on a new vendor, it’s a best practice to say, “We can’t pay you until you sent us your W-9.” That way, you make sure you get it ’cause we’ve seen lots of instances where you pay a vendor and then, maybe six months later, it’s time to file the 1099s and you try to get a W-9 from them, and they won’t send it back, or they just won’t respond or maybe you don’t have a strong relationship with them and you just can’t get it in time. So the best practice is before you make a first payment to a vendor, get Form W-9, so you have that on the record.

The other key point is that there’s no penalty for sending too many 1099s. Even if there’s a business that turns out they’re not required to get a 1099 and you send one to them, that’s okay, there’s no problem there. Over reporting to the IRS is not an issue. It really just takes more time and effort on your part but to limit the amount of time and resources that you spend on this, it’s best just to make sure you have all the information from the vendor in the first place, so you’re not sending out too many Form 1099s and wasting a lot of your time.

I hope this helps because I know that it can be a stressful thing in January. It’s a really tight deadline coming from the end of the year to January 31st when these are due. It’s just a good practice to have this already in place, and already set up before the end of the year, that way it’s as simple as running your report on that how much you paid your vendors and getting the 1099s processed. If you have any questions, let me know, shoot me an email, give me a call. I’m happy to help.

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