I see you survived our first terrifying tale, let’s see if you can make through part two. Read on if you dare.
In our first chapter we saw the horrors that can befall your company when collecting W-9s falls through the cracks. Now let’s examine how to handle them to turn your worst nightmare into sweet dreams.
Pay Close Attention to Entity Type
Once you have collected all of your W-9s, it is important that you review them and input the entity type into your accounting software. Setting up your software correctly can save you much unnecessary work come January.
S corps and any company ending in Inc. do not receive a 1099. The only exception to this rule is Law Firms. No matter the type of entity the law firm is, they must all receive a 1099. Knowing who does and doesn’t qualify to receive a 1099 can be very confusing, so please use us as a resource for any questions you have.
1099 mapping is available in your accounting software and allows you to review your 1099able accounts and vendors to see what information might be missing.
The IRS continues to add more and more to what is and what is not considered a 1099 service and vendor. Using accounting software will help you analyze what accounts need to be 1099’d.
Currently the IRS considers any combined services and goods totaling $600 or more to be 1099’d. This does not include goods alone, but goods accompanied by services as well. So, what does this look like.
For example, if you purchase $500 in plumbing products and $200 in plumbing consulting from XYZ Plumbing Supply, you would be required to send them a 1099. If you purchase $600 of plumbing products but no services from XYZ Plumbing Supply, then you would not need to 1099 them. Like so much with the IRS, clear as mud!
Let’s look at another example. Did you know that you should 1099 your landlord (if they are not an S corp or incorporated) for the rent you pay? That means that most small businesses will have at least one 1099. Now what if that “landlord” is you for your home business. You would then need to 1099 yourself.
Here is one final example. Did you know that if you pay a vendor (including the rent mentioned above), with a credit card, then you don’t send a 1099? The credit card company is responsible for sending the 1099 instead. However, if you pay that same vendor with check, then your business does have to be the one to 1099.
Thankfully, accounting software programs are coded for these rules and will generate an accurate 1099 report without you having to be well versed in these rules. The important thing is to make sure the software is setup properly. If you have questions on how to setup your software, we will be happy to help you.