Always get a W-9 before paying your Contractors!

A client recently told me they couldn't get a W9 from a plumbing contractor that they had worked with. They asked him for it after the fact and he wouldn't give it to them. He told them he refused to give them the information. I told him that you need to collect the W9 before you make payment. That eliminates all of the problems. And he said that most of the contractors he talked to said they would charge him more if he collected the W9 and gave them a 1099. Yes, that is true. They probably will charge you more. But let's think about who you're dealing with here and decide if that's really the right way to go. Is cheaper really a better deal in that situation? If you have a contractor who holds that hostage like that, are they going to be willing to fix problem areas? Are they going to be your best source long term? I'd suggest not. If they're cheating and lying to the irs, are they really going to be telling you the truth? No, they're probably going to cheat and lie with you too. If they're not afraid of the irs, what is it that you are going to do to them that would make them do you right? So I'd suggest setting a process in place. We've suggested this many times and many of you are hesitant about this. But I want you to think about a process going forward as you begin to work with a contractor or any subcontractor situation. Collect the W9 before they begin to do the work. When they quote you a price, say yes. Okay, here you go. I need you to fill out this W9. We'll get you set up in our system so that we can pay you promptly when the work is complete. If you take that stage and approach, you're telling the contractor, hey, I am above board here. I am an honest business person and I am trying to do right by you. Make sure that you get paid on time and there are no problems with the payment. If that contractor tells you, then they will not fill out the W9, say, okay, turn the work away and find another. I know that's a hard thing to do these days because it is very difficult to find workers. But do you really want to work with people who are cheating on their taxes and cheating the irs? They're going to cheat you too. So don't do it. Just take the information and walk away. If that's the case, when you get the W9 up front, make sure that if you are paying that person, that you pay them with the same name. So if the W9 says their personal name, but they're telling you their company is ABC Contracting, write out the check to whomever is listed on the W9 so that that information matches. And there's no question if they give you a W9 and it says the business name on it, write the check to the business name, not to their personal name. You want to make sure that you're collecting the matching information so that you don't have any problems going down the line in the future. If you have a business name on the W9, make sure it's a federal ID number that is listed and not a social number. Again, vice versa. If it's a name, they can have a federal ID number if it's a personal name listed as well. So that part is okay. But you're going to get a mismatch from the IRS if you submit a name of a business and put a personal Social Security number with it. So take these tips and I hope this helps. If somebody does refuse to sign the W9 or give you the W9, by law, you're required to withhold 24% backup withholding and submit it to the IRS before you issue their payment. Nobody likes that. We don't want to have to go through that trouble. So let's not. Let's keep it above board, keep you on the right track, not fighting battles with the IRS that you don't need to.

I'm Donna Bordeaux from campgroundaccounting.com Please follow us on Facebook and Instagram. Make sure you check out our blog and our website from the link below. Subscribe to our YouTube channel and hit the bell to be notified when we post. To contact me, email me@donnacampgroundaccounting.com.