We wrote this information in our Sept, Oct and Nov 2012 newletters. Since this is the end of the year we decided we would put it out there for people that are not on our mailing list. To subscribe to our newsletter please see the home page.
W-9, 1099, & Contractors, OH MY!
Part 1: W-9 The Begining of the Year End
Did you know that certain entities that you pay money to need to have a 1099 sent to them at the end of the year?
In preparation for filing 1099's, the Request for Taxpayer Identification Number and Certification, or Form W-9, must be completed. This is a government form used to collect identifying information by a third party and help the payee avoid backup withholding. The W-9 requests the name, address, and taxpayer identification information of a taxpayer (usually in the form of a Social Security Number or Employer Identification Number). This form is not sent to the IRS, but is kept by the company who files the information return with the IRS, such as a Form 1099. The payor (your company) must collect withholding taxes on certain reportable payments for the IRS. However, if the payee certifies on the W-9 they are not subject to backup withholding, your company is not required to withhold taxes from payments made to the Vendor (or Contractor). This is similar to the withholding exemptions certifications found on Form W-4 for employees.
It is a good practice to have a current W-9 on file for all vendors and contractors; this will minimize errors and speed up your tax filing at the end of the year.
Get started now by using the link below to update all of your records.
For a printable Form W-9:
W-9, 1099, & Contractors, OH MY!
Part 2: 1099's: Exactly Who?
Last month we talked about making sure you had a current W-9 form for all of your vendors to assist in the year end process for 1099's. It is a good practice to require a completed W-9 for any entity that you pay money to. Most entities will be happy to give you the information if you tell them that you are unable to write them a check until you have the information. However, you are not required to send a 1099 to all the entities you pay money to. So you ask, Who do we send them to?
The IRS specifies that you must send 1099's and report payments to:
1. Payments made to a business or individual who is not your employee. You must include amounts of $600.00 or more paid for fees, commissions, prizes and awards for services performed as a nonemployee. Examples include payments to accountants, independent contractors, to an attorney for legal services performed in the course of business, other service professionals, and other forms of compensation for services performed for your trade or business by an individual who is not your employee. Payments for merchandise are not included. Most corporations are exempt from this rule; however, this exemption does not apply to payments for legal services.
2. Payments for rental property expenses. This includes any amount of $600.00 or more that you pay for the lease on your office, warehouse, or shop space.
3. Other types of payments. This includes settlement or judgment payments paid to an attorney on behalf of their clients.
4. Interest Payments. Interest payments, any amount of foreign interest payments, and any backup withholding of federal income tax of any amount must be reported on a form 1099-INT.
To view the full instructions for Form 1099-MISC:
To view the full instructions for Form 1099-INT:
It is almost the end of the year it is time NOW to get ready.
Part 3: 1099's: Getting ready to send out my 1099s.
The first thing to check the vendors to see if they are set up correctly. Go to the Vendor menu at the top of the screen and then to Print/E-file 1099s. Run the report. This will show you all your vendors. They will need to have the Tax Id number and Eligible for 1099 marked yes if they are to get a 1099. You can double click the name to correct the information as needed. Make sure the total address is correct. Remember that the owner's name needs to be on there too in most cases. The individuals name should show up first and it will if you enter the name into the contact on edit Address Info page.
The next things you need to know is were the transactions recorded correctly. This is a bit tricky. Say for example for subcontractor the may bill you for materials & labor separately. This transaction should be split. Only the labor will go on the 1099. The account related to the labor part of the transaction to will be a necessary for the next step. You may have to look at the item to see where which account the item is code to. Edit the item and look at the left sided account if there are 2 sides. The best thing to do is to keep track of the accounts the first time you do this procedure. Don't change an account on your items unless you have spoke to your ProAdvisor first because you do not want to change prior years income taxes.
Mapping is next. If you go back to the screen that talked about 1099s you will see Map Accounts. Don't attempt to do this unless you are really comfortable doing this. If you decide to do this don't change the thresholds. Box 1 & 7 are probably the most common to be used. In box 1 put in your rental payment account. In box 7, click on multiple accounts. Then you will click off all the accounts gathered in step 2 above. If you have anything other than these 2 boxes ask you ProAdvisor or Accountant/CPA how to map them.
Now you need to review. On the screen you were on in steps 1 & 3 click the #3 Run Report. You will see the 1099 Summary which lists everyone that should get a 1099. Anything in Uncategorized should probably be materials. Any name that doesn't have an amount didn't get paid enough to receive a 1099.
The first year is the toughest. If you don't add accounts the review is much easier. Remember corporations, governments or non-profits don't get 1099s. If all this process sounds time consuming then call us and let us help. We can set you up so that you are just sending out & collecting the W-9s.