Streamlining Compliance – 1099s
“1099s” most commonly refers to 3 different IRS forms, the 1099-NEC (Non-Employee Compensation), 1099-MISC, and 1099-INT (Interest). In general, 1099s are required to be issued to individuals and partnerships for services, rents, and interest paid via bank accounts in a calendar year. The forms are required to be mailed to vendors by January 31 of each year. Instructions for 1099s and other informational returns can be found at https://www.irs.gov/pub/irs-pdf/i1099gi.pdf. My focus today is not the IRS compliance rules, but how to make sure these filings are not a headache in January.
Software
1099s usually don’t require specialized software. Copeland Buhl’s Outsourced Accounting service uses accounting software that includes the ability to file most common 1099 forms and usually handles the printing and mailing of 1099s as well (you don’t have to buy the forms and postage). Form W9’s (https://www.irs.gov/pub/irs-pdf/fw9.pdf) for vendor information can be stored in some accounting systems or your preferred secure document storage solution (Dropbox, Google Drive, etc.). If your business needs to file more specialized forms please contact us to discuss.
Process
The key to streamlining 1099 compliance is based on your business’ processes around payables and setting up new vendors. If your business’ process of setting up a new vendor includes requesting a W-9 from every vendor and entering that information in your accounting system you will have the information needed to file 1099s on January 1st every year. Most small businesses do not get a W-9 ahead of time, but this is standard procedure in large corporations.
Vendor Pushback
Some small business avoid getting W-9s from all new vendors because some vendors don’t want to fill out the form or don’t think they should be getting a 1099. Don’t let an uninformed (or potentially tax-dodging) vendor push you around. These vendors are potentially exposing your business to penalties for not filing required 1099s. 2021 penalties are $280 per 1099 not filed and double if the IRS believes you are intentionally disregarding 1099 rules (https://www.irs.gov/payments/information-return-penalties). If a vendor is hesitant to return a W9 form explain that you need it for 1099 compliance and in extreme conditions, consider withholding 24% backup withholding from that vendor’s payment and filing a form 945 (https://www.irs.gov/pub/irs-pdf/i945.pdf).
Summary
1099s take some work, but if you build your vendor setup process to collect the required information during the year your business can keep focus on starting the year strong instead of spending time reviewing vendor payments from the previous year.