Avoiding Penalties on Forms 1099

Fall is in the air, and I can almost smell the pumpkin pie baking in the oven. As year-end tax planning and holidays draw ever closer, now is a good time to review Form 1099-MISC requirements. Are you prepared for the January rush? Often I see company personnel scrambling to obtain Forms W-9 from eligible vendors at the last minute. Sometimes those vendors are not cooperative with providing information after-the-fact.

Did you know that the IRS puts the burden of reporting on the Payer? In other words, you are responsible for obtaining the necessary information from your vendors. Failure to file returns and failure to file correct (and complete) returns can result in penalties.   If a vendor fails to provide information or fails to provide correct information then backup withholding requirements come into play. (See Form W-9 General Instructions) If you are gathering your information after paying your vendors, and are not able to obtain the necessary information, then you may also be subject to penalties for failure to withhold which can include having to pay the required withholding yourself. You can avoid penalties and keep your sanity in check in January with the following tips…

Best Practices for 1099s

  • Obtain Forms W-9 from all vendors that appear to meet the guidelines. Never assume a vendor is not eligible.
  • Obtain Forms W-9 before you hand over that first check. If a vendor refuses to provide it let them know their check will be less the required backup withholding.
  • Know that LLCs are not necessarily corporations. They may or may not need to be issued a Form 1099-MISC. A completed Form W-9 will inform you of their eligibility.
  • If you obtain the necessary information by phone or email be sure to document who provided the information and when you obtained it. Written documentation from your vendor is always a good idea. An actual Form W-9 is your best option.
  • Review your vendor files annually to ensure you have not missed anyone.
  • Periodically request new forms in order to keep your information up-to-date.
  • Follow the Notice B requirements should you receive a matching notice from the IRS.
  • Develop a written policy for your company that outlines your vendor and Form 1099-MISC practices.

Start working now to get your vendor information up-to-date and policies in place. You may have some follow-up to do with your vendors for 2015 payments already made. Getting prepared now, and then continuing these best practices going forward, will save you time, energy and headaches each January.

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Heather Thompson
Heather Thompson

Heather Thompson is a Senior Manager at BeachFleischman PC and manages our Accounting Services department. She began her career in public accounting in 2005 and has extensive experience providing accounting services to a wide variety of industries.