It is never too early to prepare for 1099 season. Right after the holidays, we are back to work and, before you know it, 1099s need filed! There is a very short window of time for preparation, so get ready now! We have some suggestions to help you have a successful 1099 season.
Tips for 1099 Preparation
- Set aside time to review your records on a quarterly basis and update vendor information annually. Make this process an activity for the entire Accounts Payable team. Verify that current W-9 forms are on file and that the information on the W-9 form matches the information in your software, including the vendor’s name, address, EIN, and Federal Tax Classification. It is also helpful to attach the W-9 form directly into your software. Some accounting software may be able to generate 1099 information necessary for filing automatically for you using the data entered from the W-9 form.
- When you pay vendors throughout the year, collect their W-9 forms before releasing payment. Even if the payment is under the threshold of $600, obtaining these required forms when onboarding a vendor or contractor is key. A policy that requires these forms before money is exchanged really works! This is the best way to ensure that you are filing 1099s accurately. Failure to file a 1099 for a vendor or contractor who turns out to be non-exempt aids in being tax evasive and puts you at risk of penalties and fines.
- Before finalizing your information for 1099 filings, check it and double check it. Verify that the amounts are accurate for vendors. Confirm that addresses and EINs are correct. You may be subject to penalties, or be required to complete vendor backup withholding, if you report incomplete or incorrect information. To prevent penalties and corrections, review transactions and W-9 forms to guarantee that you file accurately.
- If a business makes payments that require a Form 1099, it is required to obtain the taxpayer identification number (TIN). Using a form W-9 to request taxpayer information is the easiest way to receive complete and accurate vendor information, making the 1099 process a breeze. If a vendor refuses to provide this information, they become subject to backup withholding of 28% on all future payments. This creates an additional administrative burden and requires added tax filings and compliance. To avoid the risk of penalties, ensure you have complete and accurate information on file for all vendors.
- The IRS can access penalties for late filing, filing without complete information, filing with incorrect information, filing on paper when required to file electronically, and failure to file at all. For 2023, penalties range from $50-$580 per form for incomplete or inaccurate filings.
Solicitating a W-9 form can be a very painful part of the process, but action in the beginning will save you trouble in the end.
If you would like to talk to one of our professionals in our Entrepreneurial Support & Client Accounting Segment on this topic or any other business-related topic, please do not hesitate to contact us.