Just as employees receive W-2 forms which lists income they received during the year, Independent Contractors are issued form 1099 as a record of income received from their clients. Here are some tips to help you get through this process successfully.
To avoid having to withhold and pay taxes on an invoice or receiving a penalty for not doing so, set a policy to require a completed Form W-9 from any unincorporated entity that provides services in the course of your trade or business BEFOREyou make a payment to them. A LLC may or may not be a corporation. Use Form W-9 (available here) to determine whether or not to issue a 1099.
The recipient’s name and the recipient’s identifying number must match the IRS records or the 1099 will be rejected. Do not use DBA names. For a sole proprietor use their Social Security Number. For a single member LLC use their Tax ID Number not their Social Security Number.
Undeliverable 1099’s should be held for four years, in case eventually it can be delivered.
Whenever in doubt, always issue a 1099. Receiving a 1099 already included in taxes reported will not hurt anything.
If you have any questions or would like more information, please contact:
Beth Edwards
302-656-6632
EEdwards@CoverRossiter.com