The Do's and Don'ts of 1099

It's always become a favorite topic. First off, what is a 1099? A 1099 is a form that you are required to provide to any unincorporated entity that you pay more than $600 to in a calendar year. The purpose of this form is to make sure that other people are honest and they're reporting their income appropriately. So the IRS is going to unofficially make you their watchdog. So you must send out a 1099 to report any payments that you make to someone who is unincorporated. Now, when we say someone, it doesn't necessarily mean an individual. This is anyone who does not have Ink or Corp after their name when you write the check. So if you're sending it to an llc, a partnership, your landlord, anyone doing some subcontract work for you, those all qualify. To be specific, you should get a W9 from every vendor that you pay more than $600 to. That's your proof whether or not you should issue the 1099 or not. So unless that check says Inc. Or Corp after it on the payee line, you want to get a W9. Now, let's talk about timing for a moment. A W9 is a form where you're going to request the name, address and Social Security number or federal ID number of how that payment is to be issued. If you want to do this the easy way, request that W9 and require that they give it to you before you give them the payment, they're motivated. They'll give it to you much easier at that point if you wait until later on in the year when your requirements come due, guess what? You're probably going to have trouble finding some of them or some may be non cooperative. Even if they're non cooperative, it doesn't mean you're off the hook. But I'd suggest that if you just can't find someone or you can't get them to complete the W9, which they are required to do by law. If you can't get that information, have documentation in your area to prove that you tried and to show the efforts that you made. In most cases in the past, the IRS has let you off the hook on penalties for not filing 1099s when you complete those 1099s and file them. After all, they're just looking for the tax from the other side to be collected, so they really want whoever you paid that money to, not you. However, they have been very stringent with penalties in the past few years, have threatened penalties. Now, I have not seen the penalties actually come through yet, but it's probably just a matter of time. So to be safe, let's have you get that W9 right off the bat before you issue the payment. As a matter of how you write out checks to your vendors, go ahead and get the W9 ready. Have a little stack of them on the counter. Keep them right by your checkbook as a reminder to get that information before you issue the payment. The next part at your end that your job will be very easy if you've collected those W9s. I also highly suggest that you get the email address along with that, you can issue the 1099 via email. If you have to do postage, it's going to cost you a little bit more to do, so it's much more effective, it's faster, and it will make things a little more streamlined for you if you can issue that 1099 via email instead. So collect W9s and emails to save yourself some trouble. If you have any questions about issuing 1099s, we've got several other posts out there about who should get one and how to determine that. But the safest way, collect the W9 before the payment. Keep record, and also make sure that whoever you write that check out to is the same name as is on the W9. So for example, if somebody's doing business as, let's say it's ABC Corp. Inc. Don't write the check out to Joe Smith, who's the owner of the company. That's a whole different variation and you'll need a W9 from Joe Smith since that's who you made the payment to. So let us know if you have any questions. And good luck at keeping up with 1099s. Have a great day.