If you use independent contractors to perform services for your business or rental and you pay them $600 or more for the year, you are required to issue them a Form 1099 after the end of the year to avoid facing the loss of the deduction for their labor and expenses, and to avoid a monetary penalty. (This requirement generally does not apply for payments made in 2011 to a corporation.)
IRS Form W-9 (Request for Taxpayer Identification Number and Certification) is provided by the government as a means for you to obtain the data required (legal name, tax ID number, address) from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law should the vendor provide you with incorrect information. It is highly recommended that you have a potential vendor or independent contractor complete the Form W-9 prior to engaging in business with him or her.
Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099s to contractors, they realize that the required documentation was not collected. Often, it is difficult to acquire the contractor’s information after the fact, especially from those contractors with no intention of reporting the income.
Let’s say that you have a repairman out early in the year, pay him less than $600, and then use his services again later. As a result, the total you’ve paid him for the year exceeds the $600 limit. You then realize that you do not have the information needed to file the 1099s for the year and will have to spend your valuable time contacting the repairman to obtain the information. Therefore, it is always good practice to have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you retain their services. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversight and protects you against IRS penalties and conflicts.
If you have questions, please call our office.
- 24 Jan, 2011
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