Now is the perfect time of year to remember why it is important to get documentation from your vendors as part of a complete set-up before you remit even one payment to them.
Everyone is currently under pressure to issue 1099s, which must be sent out no later than January 31. The biggest question is often, who do I need to send a 1099 to? Generally, you must issue a 1099 for any vendor who is not incorporated and who has provided services (not goods) to you in the prior year of $600 or more. There are some special rules that apply to other circumstances though. The best way to manage this is to get a W9 form from EVERY vendor before you pay them. Why? That allows your bookkeeper to track and record the vendor’s status.
At ZümiFi, we will attach that W9 to the vendor’s profile within QuickBooks Online. That meets all of your recordkeeping requirements and helps us keep track of each and every vendor. It also allows us to add notes about that particular vendor.
What happens if you don’t ask for that W9 form? Well then, like some of our clients, you run around in January trying to track down those vendors and find out their information now. Some vendors are very helpful and will supply that information quickly and easily. But other vendors are harder to contact. We have a vendor right now for one client who just isn’t responding at all! We have other situations where the contact information we have is no longer valid.
Who is on the hook for this? Unfortunately the client! It is your responsibility to issue 1099s appropriately and correctly. If you do not issue 1099s that you should have, there, of course, are penalties that you can be assessed. Also, should you be audited by the IRS in our experience this is also literally one of the first things the IRS will review.
So make sure you are in compliance – ask for this information before you ever issue a payment to the vendor! It is easy information for them to provide, and there is no reason whatsoever that you should have to chase them down months later. Get their information up front. I guarantee they will be much more motivated to do so if they know they won’t receive payment for their services until they have done so!
ZümiFi – smart bookkeeping practices to keep you compliant!