Best Practices in 1099 Reporting

The 2016 1099 deadline is just slightly over a week away. This year, one major change affects 1099 issuers in the US. The due date for sending Form 1096 to the IRS has been moved up from February 28th to January 31. For many, this adds an additional time pressure to ensure all of the information is correct and ready to submit on time.

My clients frequently ask for guidance on best practices in keeping track of the requirements. One of the biggest headaches this time of year is trying to get W-9 information from vendors who slipped through the cracks.

The best practice, of course, is to request W-9 information before a check is issued. While this isn’t always the case, there are some other “hacks” to make this process go more smoothly.

1. You don’t necessarily need a formal W-9 if another form contains substantially the same information.You can develop your own form for purposes of collecting the same information if you include the certification requirements.   However, if you’ve received a “B” Notice for the recipient in the past, follow the instructions on that notice.

2. In Quickbooks, you can save a lot time by including the word INC or CORP in the vendor name if the company is a Corporation. Unless an exception applies (like Legal fees), corporations are generally not subject to 1099 reporting. Refer to the 1099 instructions for more information. LLC’s can be a source of confusion as an LLC can be taxed in several different ways. How the LLC is taxed determines whether or not a 1099 is issued. Partnerships, sole proprietors and individuals are not exempt from reporting.

3. If a payee won’t provide a Tax ID number, I usually send a final letter highlighting the “Refusal to provide TIN” section of the W-9 instructions. Failure to provide a TIN can trigger a $50 IRS penalty. If they still won’t comply, I file the 1099 with the words “REFUSED” in the TIN field. Keep proof of your diligence in trying to comply with the requirements.

4. If you are still regularly paying a vendor who will not provide a tax ID number, you may have to resort to back-up withholding. Refer to the link to the instructions below.

5. When requesting W-9 forms , provide the entire form (all 4 pages) there is a wealth of information in the instructions. Many B notices can be avoided simply by adhering to these instructions.

6. Use the notes field in the vendor screen in Quickbooks to keep track of 1099 issues. You can also scan and attach the W-9 for future reference.

7. Do a 1099 checkup quarterly to see which information is missing (which of course should be none if you get it before payment is issued). It can be difficult to track down vendors months after they are paid to obtain their information. Don’t wait until December or January to start tracking down missed information.

8. Save your blank forms for a few months in case you have to issue a corrected or missed form. I avoid using the IRS forms as they’ve always jammed my printers.

9. Last minute filing? There are many electronic filing providers who charge roughly $3-5 per form and take care of the 1096 filing and recipient copies as well. I’ve used Yearli and Intuit on line payroll in the past which both work well.

10. If your company handles a large number of vendors, develop a vendor on-boarding process to reduce 1099 headaches. I’ve seen a number of Quickbooks files that don’t utilize the vendor contact information fields which can be a good source of information.

11. Many times vendors are duplicated in Quickbooks. You’ll need to fix that before issuing 1099’s. The easiest way to correct duplicates is by merging the vendor names. Go to the Quickbooks vendor file, copy the vendor name of the vendor you want to keep, then open the vendor you want to merge. Rename that vendor exactly the same name, punctuation and all. A box will pop up asking if you want to merge (this cannot be undone).

12. When in doubt, read the instructions:

Form W-9

IRS 1099 Instructions