If you used independent contractors to perform services for your business or trade, and you paid them $600 or more for the year, you must issue them a Form 1099-MISC to get the deduction for their labor and expenses and avoid potential penalties. (This requirement generally does not apply to payments made to a corporation. However, the corporation exception does not apply to payments made for attorney fees and for certain payments for medical or health care services.)
It is not uncommon to have a repairman early in the year, pay him less than $600, then use his services again later and have the total you paid him for the year exceed the $600 limit. If this happens, you may overlook the information needed to file 1099s for the year. Therefore, it is good practice always to have individuals complete and sign the IRS Form W-9 the first time you use them. This eliminates oversights and protects you against IRS penalties and conflicts.
Many small business owners and landlords overlook this requirement during the year, and only realize in January that they have not collected the required documentation to issue 1099s.
If you have not collected W-9s throughout the year, do so as soon as possible, so you will have them available when it comes time to prepare 1099s for the year. It is sometimes difficult to acquire contractor information after the fact, especially from those contractors with no intention of reporting the income, so itâ€™s always better to get it up front.
Form W-9 provides entries for the contractorâ€™s name, contact information and tax ID number. It also includes a signature block for the contractor, certifying the information and insulating you against penalties if he or she provides an incorrect or phony ID number.
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Copyright 2014 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire, with more than twenty- five years experience on Federal and New Hampshire issues affecting small business, and specializes in keeping his clients OnTrack with bookkeeping, tax, and payroll services for a fixed monthly fee. Learn more about Steve’s exclusive SIX Step system developed for small businesses at www.appletreebusiness.com/map.