Issuing 1099s and the Importance of W-9s
Without issuing a 1099 to qualified vendors and independent contractors, the IRS can disallow the expenses which will result in increased taxes for the business. There are also penalties for not filing and late filing of 1099s.
Who should you issue a 1099 to?
1099 forms are essentially the W-2s of independent contractors. You are required to issue a Form 1099-MISC to any service provider (who is not acting as your employee) that provides your practice a service and to whom you have paid more than 600 dollars. If the service provider is a corporation or an LLC that is taxed as a corporation, you do not need to issue a 1099, UNLESS the corporation has been paid to perform legal services or medical or healthcare services. If the service provider is a sole proprietor, partnership, or LLC that is not taxed as a corporation you DO need to issue a 1099. You also are not required to issue a 1099-MISC if you paid the independent contractor only using a payment processor (Credit Cards or PayPal) as the payment processor is required to issue a 1099-K. HOWEVER, if there is any doubt about whether you should issue a 1099, go ahead and send one. There is no penalty for sending a 1099 when it isn’t necessary, but there are penalties for not issuing them when you is. Visit the IRS website to find the detailed instructions for 1099s.
When should you issue and file 1099s?
Just like W-2s, 1099s are required to issued to the independent contractor before January 31st and in most cases they are to be filed with the IRS by January 31st as well, but you should begin preparing them long before, generally in the fall.
In order to correctly issue and file your 1099s, you need signed Form W-9s from each of your service providers. You should require them to provide you with a completed W-9 BEFORE making any payments to the vendor. This makes it more likely that you will have W-9s for all vendors. Generally, new vendors are excited to begin business with a new client and will happily provide W-9s so they can start receiving payments. Otherwise, if you wait until later to request W-9s, the vendor could possibly dither in getting it to you since they have no incentive for you to be able to fill out your 1099, and they may even see it as an opportunity to avoid reporting income to the IRS.
For more information about Forms 1099 or W9 or to download the forms, visit the IRS website or follow the links below.