Avoiding Penalties on Forms 1099
Issuing 1099s
Fall is in the air. I can almost smell the turkey roasting in the oven, and I look forward to eating pumpkin pie all year! As business owners the holidays can distract us from year-end planning so now is the time to make sure you’re in good shape for closing out the year. A big year-end task that affects every company is issuing Forms 1099 which are due to the IRS and vendors by January 31st of each year. Are you ready?
Did you know that the IRS holds you responsible for obtaining the necessary information and doing so in a timely manner? I often see company personnel scrambling to gather information at the last minute. Failure to file returns, and failure to file correct returns, can result in penalties. If a vendor fails to provide correct information you are responsible for implementing backup withholding procedures. If you wait to gather the necessary information until after you’ve made payments to your vendors, and are not able to obtain it, you may be subject to penalties which can include paying the required withholding yourself. While not mandatory, use of the IRS issued Form W-9 is the best way to obtain all of the information you need. You can find the most recent version here.
Best Practices
You can avoid penalties and reduce the stress of January with the following tips…
- Obtain Forms W-9 from all vendors that appear to meet the guidelines. Never make an assumption about their eligibility.
- Obtain Forms W-9 before you hand over payment. If a vendor refuses to provide it let them know their check will be less the required backup withholding per IRS rules.
- Don’t assume an LLC is a corporation. They may or may not have chosen corporate tax classification with the IRS. A completed Form W-9 will give you the info you need to determine their eligibility.
- If you obtain information by phone or email be sure to document who provided it and when you obtained it but keep in mind that written documentation is always the best practice!
- Review your files annually to ensure you haven’t missed anyone and periodically request new forms to keep your data up-to-date.
- Follow the Notice B requirements should you receive a TIN matching notice from the IRS.
- Develop a written policy for your company that outlines your practices and be sure new staff understands the process.
Start now!
Don’t wait! Review your files and begin contacting vendors now to reduce stress and save time in January.
