Category: Individual and Business Tax Consulting
Frequently, business clients ask us to assist in issuing their 1099’s. This requires a review of their vendors and each vendor’s W-9. Unfortunately, many times the organization has not requested the W-9 from the vendor, and we must then ask them to do so. Most companies will comply when asked to complete a W-9, but there are those who don’t.
Regarding the issuance of 1099’s, the current rules are as follows: If your business (this includes self-employed individuals, LLC’s/Partnerships, and Corporations) pays $600 or more a year for services, rent, or royalties to any individual, Partnership or LLC, not taxed as a corporation, you are required to issue Form 1099-Misc reporting the total dollar amount paid to them during the year. Only issue Form 1099-Misc for payments to corporations if made for legal services and medical services. However, you are exempt from issuing a Form 1099-Misc to anyone paid via a credit card, Paypal or any other institution that issues Form 1099K.
To do this properly, each service provider must give you a signed Form W-9 stating his or her name, address and employer identification number or Social Security number before you make the first payment to this provider.
If you do not have a Form W-9 and do not issue the required Form 1099-Misc, the IRS WILL hold you responsible for not withholding 28% tax on the amount paid and assess penalties for not issuing the required form. The penalties are $260 for each failure to file and an additional $260 for each failure to issue a required Form 1099. The IRS is very serious about 1099’s being filed and in addition to the potential penalties for not filing, they can/will deny the deduction for that expense under audit. We strongly recommend that you request a W-9 from all vendors you do business with (with the exception of public companies). This will allow you to accurately generate the required 1099’s and if you are ever audited, you can produce the W-9’s and show that you are in compliance.
If you need a blank Form W-9, you can download it from: http://www.irs.gov/pub/irs-pdf/fw9.pdf. or contact your Kerkering Barberio Tax Professional at 941-365-4617.