1099s for 2020
Your IRS 1099s will need to be sent electronically or mailed by the end of January. In order to process them correctly, a W-9 is needed for anyone who provided rent or a service to your company that you paid over $600 during the year.
The deadline to sign up for Business by the Book to process your 1099s is Tuesday, December 15, 2020. Please use this link to sign up for 1099 Processing: https://www.businessbythebook.money/sign-up-for-1099
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.
W-2
(Wage & Tax Statement) The document that an employer is required to send to each of their employees and the IRS at the end of the year. The W-2 reports the employee’s annual wages and the amount of taxes withheld from his/her paychecks.
W-9
Request forTaxpayer Identification Number (TIN) and Certification. You use this form to collect information from vendors you hire as independent contractors.
Form 1099-NEC
A new IRS form that is used to report income earned as an independent contractor.
Form 1099-Misc
The older IRS 1099 form that has now changed. This form would still need to be submitted to report rent.
Who?
The IRS states that a 1099-NEC is to report nonemployee compensation, anyone that is not on your payroll that you paid more than $600 in one year. If you do not pay employer taxes on this person, they must get a 1099. Some examples of individuals or businesses that may receive a 1099-NEC include:
Cleaning Service
Graphic Designer
IT Professional
Photographer
Virtual Assistant
Bookkeeper
Accountant/CPA
Legal fees
Business Coach
Consultants
Installers (Tile, Carpet, Appliances, Wallpaper, etc.)
Consignment Vendors
Business by the Book recommends that you always request a completed W-9 form from any business or individual before you remit payment on their invoice.
Important Note: If the vendor checks the box for C Corporation or S Corporation, or if they check Limited liability company and write C or S in the box (for C=Corporation or S=S corporation) on the W9 form, no 1099 is required. You are not required to send a form 1099 to S-Corps, C-Corps, or Non-Profits. 1099s are only for individuals or businesses that are non corporate LLCs or partnerships.
Form 1099-MISC form is required to report rent and any gross proceeds to an attorney.
What?
What is the difference between a W-9 and a 1099?
A W-9 is the 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.
A 1099 is the form that you file using the information provided from the W-9. The 1099 reports the income that the individual or business earned from you during the year. The 1099 is sent to three entities: the IRS, the state government, and the individual.
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 a 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 give 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 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 will receive a 1099 from ABC Consulting.
