{"id":25391,"date":"2022-04-08T08:00:53","date_gmt":"2022-04-08T13:00:53","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=25391"},"modified":"2022-04-05T10:12:09","modified_gmt":"2022-04-05T15:12:09","slug":"if-you-think-your-1099-obligations-are-on-hold-until-next-year-its-time-to-brush-up-on-the-rules","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/if-you-think-your-1099-obligations-are-on-hold-until-next-year-its-time-to-brush-up-on-the-rules\/","title":{"rendered":"If you think your 1099 obligations are on hold until next year,  it\u2019s time to brush up on the rules"},"content":{"rendered":"<p>Even though Form 1099 deadlines occur at the start of busy season, the compressed filing term may cause a lackadaisical approach to completing less critical tasks. It\u2019s challenging to get our clients\u2019 1099 data within a short period and is stressful for the preparer. With misplaced or missing paperwork, it\u2019s no wonder both parties dread the task.<\/p>\n<p>When it\u2019s all over, everyone breathes a sigh of relief \u2026 until next year. But there\u2019s no need to get stuck in a repetitive cycle. You can use the following list with your clients to help you set expectations for compliance work that occurs throughout the year.<\/p>\n<h2>Best practices checklist<\/h2>\n<ul>\n<li>Request Form W-9 upon hiring a vendor.<\/li>\n<li>Never issue payment until you get the form.<\/li>\n<li>Run a taxpayer identification number (TIN)<\/li>\n<li>Review for backup withholding issues.<\/li>\n<li>Keep the form confidential.<\/li>\n<li>Analyze the tax classification.<\/li>\n<li>Mark the vendor 1099 trackable in software, if applicable.<\/li>\n<li>File timely to avoid penalties.<\/li>\n<\/ul>\n<h2>Requesting Form W-9<\/h2>\n<p>Form W-9 asks for the taxpayer\u2019s data, similar to Form W-4, but in an abbreviated format. Your client (requester) needs these details to decide if the vendor (recipient) receives Form 1099-NEC or Form 1099-MISC. A vendor refusing to provide the form may be subject to a $50 <a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/fw9.pdf#page=2\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">penalty<\/a> for each occurrence.<\/p>\n<h2>Waiting to issue payment<\/h2>\n<p>Without the form, your client cannot meet their tax duties. It puts them in a precarious position, one that is preventable. A vendor that ignores W-9 requests or excuses their delay might also forecast a problematic relationship.<\/p>\n<h2>Running a TIN match<\/h2>\n<p>The form allows the requester to run a TIN match to confirm the validity of the recipient\u2019s tax details. It also puts the requester on notice when working with a foreign contractor\u2014requiring the recipient to remit a W-8 series form rather than the W-9. The matching process also helps prevent the receipt of <a href=\"https:\/\/www.irs.gov\/newsroom\/redesigned-backup-withholding-cp2100-and-cp2100a-notices\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">CP 2100\/2100A notices<\/a>.<\/p>\n<h2>Reviewing backup withholding<\/h2>\n<p>Using a vendor without a W-9 leads to 24% <a href=\"https:\/\/www.irs.gov\/newsroom\/heres-what-taxpayers-should-know-about-backup-withholding\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">backup withholding<\/a> from each payment and the need to file <a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/f945.pdf\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">Form 945<\/a>, <em>Annual Return of Withheld Federal Income Tax<\/em>. It also applies when the recipient strikes out Part II Item 2 on Form W-9. The withholding can be lower or higher for a foreign contractor, depending on exemption or <a href=\"https:\/\/www.irs.gov\/individuals\/international-taxpayers\/claiming-tax-treaty-benefits\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">treaty<\/a> status. And if the client does not withhold and remit, they may be responsible for the unpaid tax.<\/p>\n<h2>Keeping the form confidential<\/h2>\n<p>The client must protect the personally identifiable information they now control. That means taking measures to use secure acquisition and storage methods. For example, depending on their accounting software, the client may request the W-9 inside the platform, rather than rely on less secure email transmissions.<\/p>\n<h2>Analyzing the tax classification<\/h2>\n<p>You might dismiss the need for a W-9 because an \u201cInc.\u201d appears in the company name, but that\u2019s a risky move. The name is not always indicative of an entity\u2019s taxable status\u2014an \u201cLLC\u201d may elect the S Corp classification. Only the form will reveal its proper category.<\/p>\n<h2>Marking the vendor trackable<\/h2>\n<p>Once the client knows the vendor may need Form 1099-NEC\/MISC, they can mark the profile 1099 trackable in their accounting program. Then, at year\u2019s end, the accountant or client can generate a report for vendors surpassing the $600 or applicable threshold to make tax time easier.<\/p>\n<h2>Filing timely to avoid penalties<\/h2>\n<p>It&#8217;s costly to skip an information return because of the two-fold filing rule: one form for the vendor and the IRS. A small business\u2019 unfiled 1099s due in 2022 may incur penalties as high as <a href=\"https:\/\/www.irs.gov\/payments\/information-return-penalties\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">$570 per failure<\/a>, or $1,140 combined, not to mention the state penalties.<\/p>\n<h2>Minimize liability<\/h2>\n<p>Failing to get a W-9 presents several problems, including incorrect analysis, backup withholding, and tax liability. The situation also creates more work for the client, taking time away from supporting their business operations. It\u2019s better to replace a non-complying vendor than to continue the working relationship.<\/p>\n<p>When your client is on the hook for the vendor&#8217;s tax and hefty penalties, there&#8217;s a lot at stake. Reassess your pricing structure, especially if you complete these documents for free. Consider the potential errors and omissions (E&amp;O) costs when setting the fee, including a rise in insurance premiums or non-renewal of the E&amp;O policy.<\/p>\n<p>To dive deeper into this topic, check out &#8220;<a href=\"https:\/\/www.deductingtherightway.com\/1099-forms-books?r_done=1\"title=\"\"  target=\"_blank\" rel=\"false noopener\" target=\"_blank\">Deducting The Right Way: 1099 Supplemental Guide<\/a>,&#8221; which summarizes the critical components of over 16 IRS publications and forms.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Helping your clients with their 1099s may seem simple, but there are some obstacles to overcome. help your clients understand their obligations with this information from Iris K. Palma, JD, and Thomas J. Williams, EA.<\/p>\n","protected":false},"author":144649045,"featured_media":25393,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rkv_reviewed_by_select":[],"rkv_browse_by_id":0,"rkv_cta_id":0,"rkv_optimize_for_pagespeed":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"useModifiedDate":false,"customPublishDate":"","customModifiedDate":"","_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"{title}\n\n{excerpt}\n\n{url}","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false,"jetpack_post_was_ever_published":false},"categories":[509474089],"tags":[7649],"intuit_collection":[],"intuit_series":[],"coauthors":[646041845,582953244],"class_list":["post-25391","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-tax-law-and-news","tag-irs"],"header_image":"","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.7) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Year-Round 1099 Compliance for Tax Pros<\/title>\n<meta name=\"description\" content=\"1099 obligations do not pause after busy season. 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