This should help
Let’s break down the Who, What, When, Where, How, & Why of 1099s.
First, a few definitions:
Internal Revenue Service (IRS)
The federal agency is responsible for collecting federal taxes.
Subcontractor
A non-employee individual or a company that provides services or labor for your firm. If they are not incorporated and you paid them more than $600 this calendar year, you will need to report monies paid to them with a 1099.
W-9
Request for taxpayer Identification Number (TIN) and certification. You use this form to collect information from vendors you hire as independent contractors. It lets you know whether they are incorporated or not. If they are not incorporated a 1099 will need to be sent. If they are incorporated, keep the form on file as proof for why no 1099 was required for them.
Form 1099-NEC
This IRS form is used to report income earned as an independent contractor. They must be sent out by the end of January.
Form 1099-Misc
The older IRS 1099 form changed in 2020. This form would still need to be submitted to report rent paid to a non-incorporated landlord. Also due at the end of January.
Who?
The IRS states that a 1099-NEC is to report nonemployee compensation, i.e., anyone that is not on your payroll that you paid more than $600 in one year. If you do not pay employment taxes on this person, they must be sent a form 1099. Some examples of individuals or businesses that may receive a 1099-NEC include:
Cleaning Services
Graphic Designers
IT Professionals
Photographers
Virtual Assistants
Bookkeepers
Accountants/CPAs
Legal fees
Business Coaches
Consultants
Installers (Tile, Carpet, Appliances, Wallpaper, etc.)
Consignment Vendors
Tip - Business by the Book recommends that you always request a completed W-9 form from any of these types of businesses or individuals before you remit payment on their invoice.
The form 1099-MISC form is now required to report rent paid and any gross proceeds to an attorney.
What?
What is the difference between a W-9 and 1099?
A W-9 is a form containing information that your vendor provides to you. This includes their Taxpayer Identification Number (TIN) or Social Security Number, their federal tax classification, as well as their full name and address. We use this form to update your vendor files and prep for sending 1099s.
1099 is the form that a company will file using the information provided from the W-9. 1099 reports the income that the individual or business earned from you during the year. 1099 is sent to three entities: the IRS, the state government, and the individual. You also keep a copy for your own tax purposes.
When?
We begin helping our clients review their 1099s in November. It is not uncommon to need to go back and collect W-9s from individuals or businesses. 1099s must be filed by the end of January.
Where? And How?
At Business by the Book, we use QuickBooks Online to manage your bookkeeping. The software allows us to easily track your vendors for 1099-NEC and 1099-Misc. Our Account Managers help our clients remember to collect W-9s from any individuals or businesses that may need 1099.
Important Note: If you pay a vendor with a credit card, the credit card company will report that income on their own 1099 to the vendor. Our clients are only responsible for reporting the vendor income that was paid via cash or check (this includes Venmo, Chase QuickPay, Zelle, etc.).
Why?
Simply put, the IRS does not like it when people do not report their income. The 1099 that you sent to your vendor is filed with the federal and state government. That way, if a vendor doesn’t report their income correctly, the IRS has proof that the individual is evading taxes.
Additionally, your CPA will often use the 1099s that you filed to help you file your end-of-year taxes. Filing your 1099s correctly is the best way to ensure you are getting the most deductions possible in that category.
Am I going to get any 1099s?
You might! Are you an LLC or sole-proprietor? Have you provided services to any other business? If your services could be considered a business expense for another business, you can expect to receive a 1099 from that business.
Important Note: If you are an interior designer providing services to decorate for an individual or family ie., the Smith Family Residence, you are not going to get a 1099 from the Smith Family. However, if you help ABC Consulting redecorate their office space, you should receive a 1099 from ABC Consulting.
1099 Processing Fees for 2021 forms by Business by the Book
Your IRS 1099s will need to be sent electronically or mailed by the end of January 2022. To process them correctly, a completed W-9 is needed as soon as possible from anyone who provided rent or services to your company that you paid over $600 during this calendar year.
We are happy to process your 1099s, but this is an additional service outside of your regular Scope of Work. Prior to January 27, 2022, our fees are:
$100 per batch filing +
$20 per 1099 filed.
After January 27, 2022, the price per 1099 will increase to $35 and there could be an additional $100 batch fee. If you have any questions regarding 1099s or W-9s, please email us at info@businessbythebook.money.
The deadline to sign up for Business by the Book to process your 1099s is Friday, December 17, 2021.
Please use this link to sign up for 1099 Processing
Thank you!
Your Business by the Book Team
