If you utilize independent contractors to perform various functions in your business and you have paid them $600 or more a year, you must issue them a 1099 form at years end to avoid facing any penalties and the loss of the deduction for their expenses and labor. If you are not currently outsourcing bookkeeping services then the burden of collecting the data and filing the forms lands on you.
It is not uncommon to use services of a repairman early in the year, paying him less than $600, then utilize the same service again later having the total for the year exceeding the $600 limit. Often times as a result, you may have overlooked getting all the data needed to file the 1099 for that service. You will want to make sure you get the service providers name, business address and tax ID number.
So it’s safe to say that, it is good practice to always have individuals that are not incorporated complete and sign an IRS form W-9 the first time you utilize their services if you think by chance you might use them again in the same year. Having properly completed and signed W-9 forms for all service providers and independent contractors eliminates any possible oversights and can protect you against IRS conflicts and penalties.
The IRS W-9 form, Request for Taxpayer Identification Number, is issued by the government as a means for you to acquire the data that is required to file the 1099s from all of your vendors. It also provides you with the verification needed that you complied with the law if a vendor provides you with incorrect information. It’s highly recommend by any accounting bookkeeping services that with potential vendors, you have them complete the W-9 form prior to engaging in business. The form is available from the IRS here and can be printed out or filled onscreen and then printed out. The Form W-9 is only for your use and is not submitted to the Internal Revenue Service (IRS).
How to avoid penalties
Copies of the 1099 Forms need to be sent to the IRS by February 28th except on leap year which would be February 29th. They must be submitted on OCR forms (Optically scannable forms) or electronically. The firm that prepares your 1099s in OCR format to the IRS should also prepare the 1096 submittal form. This provides the recipient file copies and copies for your records. All copies to recipients must be sent by the last day of January to avoid any penalties. Hiring a bookkeeping service can also help you in the prevention of unwanted penalties as most will be reminding you it’s time to file your various forms.
Outsourced Bookkeeping Services to the Rescue
The penalties for failure to file the required information are $260 for each informational return, and up to the maximum of $3,178,500. Please note the amounts shown are for 2016 filings and are adjusted annually for inflation. Click here for more information on how an accounting bookkeeping service like BooXkeeping can make sure you are prepared year after year!