Tax

Importance of 1099 Forms

Although taxpayers may not like receiving multiple tax documents, businesses dislike preparing and issuing the various tax documents even more. Businesses are required to issue Forms 1099, generally on or before January 31st relating to payments made during the preceding year. The IRS uses Forms 1099 to track income that isn’t recorded in a person’s wages or salaries, which are reported on Form W-2. The IRS matches nearly all 1099s against individual and certain entities tax returns. If the 1099 cannot be matched to the recipient’s tax return, the IRS may inform the taxpayer that additional taxes are due.

Businesses must issue 1099s to any payee (other than a corporation) who receives at least $600 in non-employment income during the year. There are exceptions to the $600 rule and twenty-one (21) different varieties of the 1099 Form.

Every year, we encounter issues surrounding the issuance of Forms 1099 by businesses. These issues include determining who needs to be issued a 1099, which 1099 Form should be used, and securing the necessary information to complete the Form 1099, including address, and identifying number of the recipient.

All businesses need to establish certain procedures to enable them to identify who needs to receive a Form 1099, the correct 1099 Form to be issued, and the information to be reported on the Form 1099. Most accounting systems will produce year-end 1099 Forms; however, the accuracy of Form 1099 is dependent on the accuracy of the vendor information on file.

The following are helpful tips to avoid many of the problems encountered with year-end Form 1099 preparation:

  • When the business begins business with a new vendor or independent contractor, send the vendor or independent contractor a Form W-9 and inform them that payments are only made to vendors or independent contractors that have completed and provided the Form W-9. The vendor or independent contractor will provide the Form W-9 quickly to ensure timely payment of any amounts billed to the business. While a Form 1099 may not be required to be sent to certain vendors due the amount involved or the nature of the business entity itself, W-9s should be secured for all vendors and independent contractors.
  • Perform an annual update of W-9 information, generally on or before September 30th of each year. The business sends each vendor or independent contractor another W-9 form for the purpose of updating the vendor files and ensuring the accuracy of the vendor’s address and other information.

Gray, Griffith & Mays – Morganton, PLLC provides the annual update services for clients that request this service. Businesses may want to request this service from their respective external accountants. The external accountant can also assist in determining those vendors and independent contractors to whom a Form 1099 should be sent and the appropriate Form 1099 to be prepared at year-end.

Vendor management and reporting is a significant accounting control.  Once a business outlines the process to be followed, many of the problems encountered in the past will be eliminated. Now that 2022 is over, plan and establish protocols to avoid any Form 1099 reporting problems for 2023.

Total: 1 Comment(s)
Jocell
Such a helpful content.
Monday, March 20, 2023 · reply ·
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