Do you get surprised at end of year when all the sudden your bookkeeper starts asking you about W9s and subcontractors and verifying addresses and amounts? Or -- even worse -- do you have no idea what I'm talking about?
This may be a nasty shock, but bear with me: you are required to file a 1099-MISC Form to any person or entity that you pay more than $10 in royalties or more than $600 in rent, service, prizes, income, etc. (See the whole, ten part list here, on page 1 under Specific Instructions.) If you think for a second about every one you pay more than $600 in this calendar year, the list can get pretty long. But there are some big exceptions that will ease the burden. The following do NOT get 1099-MISC forms from your business.
- Corporations that are treated as C or S corporations
- Payments for merchandise
- See the rest of the list here, on page 1 and 2 under Exemptions.
But wait, there's more (or, rather, less). Here's a quote from Intuit:
Beginning with tax year 2011, the IRS requires you to exclude from Form 1099-MISC any payments you made to a 1099 vendor by credit card, debit card, gift card, or a third-party payment network such as PayPal.
So, who are the likely candidates for 1099s? In our experience with small businesses, subcontractors and labor (other than employees) whom were paid by check are the biggest source of 1099 creation. If you pay anyone, who is not a corporation, for services via check or electronic transfer more than $600 in one year, then you need to generate and send them a 1099-MISC right when the new year rolls around. This will especially include people whom you paid to remodel, repair, or maintain anything for your business or office. Anyone whom you commissioned for goods for your internal use (not for sale) or work and who is not on payroll will require a 1099-MISC.
We've been around the block before and we've filed a whole lotta 1099s. We're writing this to you in the summer on purpose. Here are our best practices for a midyear check on your 1099-MISC process.
1. Midyear 1099 Summary
In the summer, run (or have your bookkeeper run) a 1099 Summary for the year so far. Review this report for a few things:
- Are any of these vendors corporations? If so, cross 'em off.
- Are all of your subcontractors, outside services, and nonpayroll laborers on this list? If not, go find them!
- For the vendors on this list, do all of the amounts look correct? Are there missing payments?
- Are there any vendors that you know should be 1099 eligible that are missing from this list? If so, track down their info.
2. W9 Check
For every one on that 1099 Summary, do you have the W9 information? (Name, address, SSN/TIN.) If not, have them fill out this form so you can generate them a 1099-MISC at the end of the year.
3. W9 Practice
Make it a habit to get W9s filled out prior to paying anyone money for services, rent, etc., have them fill out a W9 form. This will help you avoid that end-of-year scramble for information, which is especially difficult when you're trying to get a hold of a vendor whom you paid back in January and it's eleven or twelve months later! Those people are hard to get a hold of, trust me. Get their W9 filled out now and save yourself a massive hassle.
4. Select your Processing Method
Choose how you will file your 1099s. If you have a bookkeeper, they will probably have a system for this and you just need to verify that they have 1099s on their radar. If you are filing yourself, you may want to fill out the 1099s by hand come end of year or use a software to electronically file, like TurboTax or Intuit.
All the information about 1099-MISC forms is available at the IRS website. If you have any further questions, check out the publications here.