Written By: Joy Broderick
As we fast approach another tax season I would like to discuss a topic that has drawn many questions from the Small Business community. Many people question who should receive a 1099. This issue affects the business tax return as the following question now must be answered on the business tax return: “Did you make any payments that would require you to file Form(s) 1099? If so have you filed or will file the 1099’s as required by the IRS?”
The IRS requires that 1099 documents be submitted for all types of income outside of salaries and wages paid to vendors. Vendors are people who provide various services, rent, interest, etc. and are often considered self employed or independent contractors.
To conform to the IRS regulations you should have on file a federal tax identification number or social security number for all vendors. You should request that a W-9 form be filled out prior to making the first payment to the vendor. The form should show the business or individual name as shown on their income tax return. The threshold to issue a 1099 is for payments made over $600.00 in the calendar year. If a business is incorporated, they are not required to receive a 1099. The exception to that is all medical and legal payments made are required to be reported on a 1099 regardless of the entity type. The name and identification numbers should follow these rules:
1- Sole proprietor-You must show the individual’s name on the first line. On the second line you may enter the “doing business as” (DBA) name. Do not enter only the DBA name and use the social security number of the individual.
2- Limited Liability (LLC)-For single member LLC use the individual’s name on the first line and the LLC’s name on the second line. Use the social security number or Federal Identification number as applicable.
Another item that you should require when requesting the W-9 for services that specifically involve labor is a copy of the current insurance certificate showing the workers compensation coverage. When it is time for your insurance audit this will help to keep your premiums down if the subcontractors you hired have coverage.
If you do not have a W-9 on your vendors, now is the time to request as the year comes to a close. Once you get the forms, update your accounting software. If you have any questions on a company being incorporated, you can log on to the Secretary of State’s website and verify the company name and if they are incorporated. These two steps are crucial to get your books ready for preparing and filing 1099s. The due dates are to the recipient by January 31 and to IRS by February 28.
The IRS has a General Instruction Booklet on 1099s available on the website (www.irs.org) and can be downloaded as a pdf document for future reference. If you have any questions or need assistance, please feel free to contact me at