Did you know?
The IRS can penalize you 28% of what you paid to a vendor is you don’t submit annual 1099’s? This is why it’s important to require vendor who are not incorporated to submit a W-9. By collecting the information now, you’ll be able to quickly and easily file annual 1099’s when due.
Today we’re going to talk about the best practices to obtain the W-9 for anybody that performed work for you, that is not incorporated.
Hi, you’ve reached Donna Blackwell of Personalized Bookkeeping and Tax Service. Because we’re all aware of January 31, the following year, you must send out 1099’s. One thing is, in your business, let’s make this a procedure of collecting vendor information that you request the W-9 from the person that you’re setting up as a vendor.
Next, we’re going to talk about the “$600 Rule”. A lot of people are confused about the $600 rule. It’s not just any payment you pay over $600. It’s $600 throughout the year. You could pay them $50 a month, and you went over the $600 so you’re required to send them a 1099 out at the end of the year.
Another good practice that would be good for small business owners is, do not pay them the money you owe them without the W-9. Because you know, it’s a lot easier to get the W-9 when (they owe you) money than it is January when you’re trying to click data to create your 1099’s.
Now, if a customer or a vendor is unwilling to give you a W-9 , you are supposed to withhold 28% of what you owe them and send that to the IRS, and good luck with that.
So, let’s talk about the 1099’s as at the end the year. The IRS requires you to collect data as their name, social security number or federal ID number to send out 1099’s of money that you’ve paid them. So the IRS looks for them to file a tax return. If for any reason you send 1099’s out with incorrect data, the IRS can come back to you and ask for 28% of that withholding for that vendor that you pay them.
So, if you paid them $100,000. How much is 28%? $28,000, it can break a up small business. And I’ve been seeing that come out more in the last year or so that I’ve ever seen in my lifetime.
Now there is one exception on 1099’s. If a business is incorporated. So, in the end the business you see INC or CO, most likely they’re incorporated. You’re not required to send out to 1099’s for any businesses that is Incorporated. But a rule of thumb is it wouldn’t hurt to request the W-9 so they can put down their status if they are a corporation or not. Anybody that’s LLC, a partnership, sole proprietorship or an individual, they must receive a 1099.
So, let’s keep it our best practice to request those W-9’s before you make the first payment. Make your 1099’s January process a lot smoother. It’s very important. You don’t want to be the one paying for them when you can’t find them at the end of the year.
Thank you and look forward to seeing more of us. More videos on how to best practice and help your small businesses.