An important deadline is looming for small business owners who use subcontractors to work in their businesses. January 31st is the deadline for the filing of IRS form 1099-Misc for all unincorporated subcontractors who were paid $ 600 or more and all fees paid to lawyers during the past year.
This is often a time of scrambling for small business owners as they try to figure out a) who they need to do 1099's for and b) what the Social Security Number or Employer ID number is for each contractor.
Often, a small business owner will hire a subcontractor to get the job done without thinking ahead to that day of reckoning in January where they need to provide the subcontractor and the IRS with pertinent information.
This lack of planning causes many business owners to begin singing the 1099 blues as they try to collect the necessary information before the deadline. In some industries, subcontractors suddenly disappear when they hear the phrase "1099". They try to avoid getting a 1099 detailing their income, preferring to take the "fly by night" express.
So, how do you avoid singing those down and dirty, IRS cursing, disappearing subcontractor blues?
1. When you start to work with a subcontractor (or any new vendor for that matter), have them fill out a form W-9. Form W-9 captures all the information you need to make the decision as to whether you need to prepare a 1099, the subcontractor's address, and the subcontractor's Social Security Number or Employer ID Number. Get this information before you cut any checks to the subcontractor.
2. The IRS wants to know about any of your unincorporated subcontractors who you pay more than $ 600 to in the course of a year. The intent is to keep tabs on self employed subs who may be trying to hide income from the IRS. Failure to file these forms puts the business owner at risk for fines and penalties for failure to file or filing late. By being proactive in getting your subs information ahead of time, you avoid the risk of missing the deadline or not including subs who should be getting forms.
3. If you find yourself in a situation where you have no idea who is incorporated or not or who should get forms or not, send W-9's to all your vendors and give them a deadline for returning the form to you. Do not wait until the last minute to do this because you will not get your forms back in time to meet the Jan. 31st filing deadline.
4. If you need help preparing the forms contact your CPA or a local accounting service to give you a hand. Remember though, their existing clients may already have dibs on their time so do not wait until Jan. 31st to ask for help.