With the 2018 Form 1099 filing season recently completed, it’s not too early to get ready for 2019. We have enclosed Form W-9 (also available at IRS.GOV) which is to be completed by your vendors (independent contractors) that you do business with. You should issue this W-9 to your Independent Contractors and have them complete and return it to you before you pay them.
The requirement to send a 1099 to vendors applies to all business including rental property you may own.
The Tax Reform Act provided many beneficial tax deductions for small business owners who operate as pass-through entities (such as S Corporations, LLC’s, Sole Proprietorships and possibly that rental property that you own). The most significant of these deductions is the ability to potentially exclude 20% of the net profit from those businesses from your personal return. To be able to do this you must be a "Qualified Trade or Business".
One area the IRS may look at to determine if your business "qualifies" is whether the business issues 1099’s when appropriate. To that end, if you have a small business, or have rental property, it would be in your best interest to issue 1099’s to all applicable vendors.
Payments for services rendered by Independent Contractors aggregating $600 or more in a calendar year must file an information return (i.e. 1099). Form W-9 is used by the trade or business to gather information from the independent contractor to prepare a 1099. Gathering this information in advance of year end is critical to be able to timely file the 1099’s with the recipient and the government by January 31.
Failing to timely file or include the correct information on either the information return or written statement can result in penalties. If the failure is corrected by the 30th day ("30-day correction") after the required filing date the penalty is $50 per return or statement. Failures corrected after the 30th day but by August 1 ("August 1 correction") of the calendar year in which the required filing occurs, are subject to a $100 penalty per return or statement. Failures that remain uncorrected after August 1 ("yearend correction") of the calendar year in which the required filing occurs are subject to a $260 penalty per return or statement.
If you would like to discuss these changes or obtain further information on this subject, please feel free to contact our office.
Sickler, Torchia, Allen & Churchill, CPAs, PC