Don't Look Now, Yearend Is Almost Here!: A Quick Refresh on 1099s
Woah! How is it even possible that we are only two weeks away from the LAST quarter of the year?? You may have sworn that you would never go into a year end as a small business owner as unprepared as you were last year. You made goals and a promise to avoid the chaos and hair-pulling. But then that one situation popped up that needed your attention (or the 15 situations…) and you thought, it’s fine. I can get back on track. There’s still time. Well one day at a time, that year has slowly slipped away and now we are nearing crunch time.
As an entrepreneur or small business owner, fourth quarter may feel like a time where you have to have all hands on deck in pushing your sales engine as hard as it can go in the final stretch of the year. Taxes, 1099s and the like can seem like they should be an afterthought.
While we get that, here at Two Roads we also feel strongly about helping the small business owner to be as prepared as possible. When you are informed, when you know where you are headed and why, when you can get to the place where you respond to a situation that you expected versus reacting to a crisis, THIS is the place that you can be the best leader for your company. This is the place you can feel at peace and strategically plan for your next steps, even a big year end sales push!
With that in mind, we are going to touch on just one simple way you can begin to prepare for the year end season. Keep your eye out for more to follow as the year goes on!
So without further ado, let’s refresh on the 1099 process:
What the heck is it?
- A 1099 is an information form that you are required to file by the IRS to report any payments that you made for any service or rent.
- Along with a copy to the IRS, you are also required to file a copy to the vendor or contract worker.
- It is basically a way to make sure that appropriate taxes gets paid on income by those who are not on your payroll.
- Failure to file these in a timely manner (usually January 31st) can result in penalties. Because you also won’t be in good standing with the IRS, it can make your company more vulnerable for audits and the like.
- Typically you will pay a bookkeeper, CPA office or payroll service to file these for you. So why read on? Because in order for any of those kind people to file your 1099s for you, they will need some basic information from you including contact information and business tax id for each of those 1099s. THIS is where the stress often comes in. It can be a lot of fun chasing down all of those vendors in the week between Christmas and New Years, just to make sure you get the info to your service provider in time. Trust me, now is better!
- Any person or non-incorporated business that you made a payment to for services (i.e. business card printing, fixing your toilets, setup help for an off-site event, business consulting, legal help, etc., etc.);
- Any person or non-incorporated business to whom you paid commission or prize/reward money that was not reported on payroll;
- OR any person or non-incorporated business that you made rent payments to. This could be rent for your building or storage units but it also includes rent paid for equipment usage and the like.
- If you made more than a cumulative total of $600 in payments for any of the above, than you need to send them a 1099.
- There are exclusions, for example if you paid by credit card, this does not require a 1099. I strongly encourage you to read over these filing instruction from the IRS so that you can be in control of the success of your tax season, even if you aren’t doing all the dirty work.
- Request that your bookkeeper or CPA review your vendors and payments for the year now and provide you with a list of those who will need a 1099 who are missing information. (Hint: Your bookkeeper SHOULD be doing this for you already!)
- Use that list to begin slowly emailing, calling or reaching out so that you can get that information now and be prepared at filing time. If this list is long, chip away 5 or so a week.
- Meet the magical W-9! This is a form that you can require from each of your vendors, contract workers or any other lucky soul receiving a check from your business. This form has all the information you need to file the 1099. You can avoid ever going through any stress around 1099 season again by making one simple change to your office protocol! Print a copy of this form or keep the link in your bookmarks. Before you make any payment to anyone not on your payroll, require them to fill this form out. As you can expect, getting paid is major motivation for them to get that form back to you.