In follow up from Things to Keep in Mind with Independent Contractors, I thought it would be appropriate to write about 1099s because of the time of the year, 1099s are due January 31!
Who do you have to send a 1099-MISC to?
Those independent contractors that you have conducted business with throughout the year, some of these may include: cleaning service, computer support, repair techs, web designers, virtual assistant, bookkeeper, accountant, attorney, business coach, or any firms that are not on your regular payroll or any other company or worker that you paid for services that is not on your payroll.
What is the Threshold?
Determine the total amount of money you paid the person or company over the year and how they were paid. If you paid (via cash or check) more than $600 throughout the entire year for the services provided, you need to issue a 1099 form. However, if you paid them via credit card or via payment merchant services you do not issue one from your business, instead the merchant service will send them one.
What type of business entity classifies them for a 1099; how do I know to ask?
The easiest way is to ask when you first hire/work with someone. You can keep all of your W-9s in a file refer back to them in January. Most people will wait until December or even January to ask for W-9s.
On the W-9 Form they will check the type of corporation they are. For example, companies that are sole proprietors, partnerships or LLCs who received money from your company should receive a 1099. C-corporations, S-corporations or some LLCs that are taxed as C or S corporation do not require a 1099.
Then why is there a box on the W-9 to check if you’re a Corporation?
MOST PEOPLE DON’T WANT TO REMEMBER WHAT TYPE OF BUSINESS YOU HAVE!
So the W-9 becomes a blanket way for them to quickly figure out who needs a 1099-MISC form and who is in the clear.
If you’re ever audited, you will have proof that all of your contractors were accounted for, and those that didn’t get a 1099-MISC were in fact corporations.
Here’s a look at a W-9. You can download one here.
Regardless when you ask…
1099-MISC FORMS ARE DUE JANUARY 31, SO YOU MUST HAVE THEM BEFORE THIS!!
Of course, you can always outsource this function to a bookkeeper to handle because the amount of time that you save in not having to request a W-9 from those that you don’t have one on file for, ordering the 1099-MISC forms, verifying all the information is entered into QuickBooks vendors correctly, running the 1099 reports, printing the forms, stuff and stamp envelopes, send copy to the IRS is significant. You have much better things to be doing with YOUR time!
Other related AGC articles: Is Your Business Ready for 1099 filings – part 2