Filing W-9s and 1099s is not the most interesting activity for most people. The W-9 form alone has six pages of instructions and almost 6,000 words with unending IRS tax code regulations. However, if you are a business owner, entrepreneur, accountant, or finance expert, you need to stay on top of these forms for several reasons.
Business owners spend over 100 hours on tax preparation every year. Most of them do not think they know enough about finance and accounting. You can make things much easier by finding out the best practices involved in creating and completing both forms and how important this is in your financial life as a business owner.
Let’s dive a little deeper.
What to Know About W-9 and 1099 Forms
For starters, businesses are required to file 1099 forms as a way of being accountable to the IRS regarding expense paid to contractors. Understanding how to use both forms helps you to keep your bookkeeping top-notch. Below is a table showing the differences in both forms:
| W-9 Form | 1099 Form | |
| You use it to collect tax information from independent contractors and any business who is not incorporated or exempt. | You use it to record how much you have paid an independent contractor over a year. | |
| It is submitted once unless the contractor’s information changes. | Submitted yearly if you paid more than $600 to any contractor or business. | |
| Should be received before any payment is given. | Should be sent to both the contractor and IRS before the end of January. | |
| The client sends a blank copy to the contractor who fills it and returns it to the client. | The client sends the filled-out copy to the contractor and IRS. |
Staying on top of these forms means you should:
- Avoid paying vendors through personal payment platforms. Rather, write a check or use professional payment platforms even though it might incur a fee.
- Always obtain all vendor taxpayer-identification numbers before making payments to avoid getting IRS notifications and/or possible fines.
- Always fill in both legal and business names on lines 1 and 2 and include your signature on the W9 form.
- Always check the tax classification and tick the appropriate box on the W9 form.
- Report errors on 1099 forms immediately.
- Keep contact information current.
Importance of Staying on Top of Both Forms
- You get to track your cash flow better: This means more accountability and better record-keeping in your finances. Having a clear picture of how your money works helps you to improve your finance and plan a better future over time.
- Allows you to work with professionals only: Doing business with clients not willing to play their part in completing the forms tells you they are not trustworthy and you can take steps to make your business more secure.
- Save more: You do not have to fall prey to the error notice or 24% deduction on all payments for not complying with the regulations. Also, proper bookkeeping will help you avoid making costly financial mistakes unknowingly thereby keeping you from being audited. For example: you cannot take the deduction as an expense on your tax return if you didn’t send a 1099 to a qualifying contractor/business.
- Better financial decisions: Remember 1099s are not just for expenses. They are also important in interests, dividends, unemployment benefits, tax refunds, and much more.
Putting it all Together
It is important to be proactive about your information reporting or bookkeeping whether as a business owner, financial expert, or professional in any field. The benefits of staying on top of these forms cannot be overemphasized. You can fast-track a better financial future today by partnering with 3Z ProBooks. Do well to secure the best bookkeeping services for your business!