As a small business owner, you need to be aware of your financial responsibilities. If you hire independent contractors or vendors to help you in your business, you need to understand the IRS reporting requirements and send out 1099s to avoid tax problems.
1099s is an IRS form that records the payment made to vendors or independent contractors. This individual or agencies include the following:
• Cleaning crews
• Marketing agency
• Accounting firms
As non-employees, any money these vendors make appears on Form 1099-MISC, which stands for miscellaneous income and is issued once a year. However, not every vendor receives 1099s from you.
The amount of money you pay a vendor for services in one year determines if that individual or company gets 1099s. In fact, the threshold is $600. If you made payment of $600 or more to any vendor, that vendor gets a Form 1099-MISC for that year. You don’t have to send out 1099s for any vendor you paid $599 or less to in one calendar year.
Another criterion is the payment method used. For vendors you paid directly with a check or debit card, you have to send 1099s. However, if you paid vendors through Paypal, credit card or other payment processing gateway, that merchant will send the vendor a Form 1099K. You won’t have to send anything.
1099s requires certain information such a legal name, type of business entity, address, EIN or social security number. The best way to get all this information is to ask your vendors to fill out and submit a W9 form.
By hiring independent contractors and vendors to help with the workload, you add to your paperwork. With a knowledgeable accounting firm working on your behalf, you won’t have to worry about running afoul of the tax authorities. To stay up-to-date on changing tax laws and requirements, contact us today.
Tax Tips for the Self-Employed – Foster Financial
6 Benefits of Having a CPA on Retainer
Brand Awareness and Your Small Business
5 Steps You Must Take for Small Business Growth
What is a Tax Planning Strategy?