Understanding W-9 and 1099-MISC Filing Forms for your Small Business
Tax time is well under way, but not over for everyone. In fact, tax time is something to consider throughout the year with its variety of filing deadlines, extensions and new regulations. As a business owner myself working closely with small business owners, freelancers and startups, it doesn’t hurt to refresh some of the basics and their importance.
As a business professional and entrepreneur, you’ve likely been required to submit a W-9 form to get paid by a customer. You’ll also need to request this form from your vendors for any payments you provide. This form is many times part a larger group of required vendor forms, including vendor application—gathers required biographical data of the business— and certificate of insurance request.
So, what is the W-9 form and what is it used for? In official terms, the W-9 is the Request for Taxpayer Identification Number and Certification. Its issued by the IRS (Internal Revenue Service) to obtain your TIN (taxpayer identification number). You may have seen the terms FEIN (federal employer identification number) and EIN (employee identification number) which is essentially the same nine-digit number assigned by the IRS to business entities operating in the U.S.
So back to W-9 forms and what you need to know about the 1099-MISC. If you are U.S. person and fill out a W-9 for a client (payor), you will most likely receive a 1099-MISC form with income you received, for which taxes have not yet been deducted. Conversely, if you have paid vendors, who are U.S. persons, you must request a W-9 form and file the 1099- form for each person to whom you have paid during the year at least $10 in royalties and at least $600 in income and other payments.
If you fail to provide 1099-MISC forms to your vendors by the annual January 31 deadline, you run the risk of not being able to deduct those payments from your income and may be assessed penalties. What do you need to do? Request that your vendors fill out vendor packets with the information above before you issue any payments. This will ensure that you have all required information to file the 1099-MISC forms if you are required to do so according to the form instructions. There are special instructions, exceptions and other circumstances that may require you to get help from a tax professional.
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