In a little over a month, it will be 2015 and time for year-end accounting chores. One of those chores is getting your 1099s out, and now is a good time to tie up loose ends so the year-end process can go smoother. Here are some tips to do just that:
- Go through your vendor list and make sure each contractor that you are paying is marked in your accounting system as a contractor eligible for a 1099.
- Obtain a W-9 form from each contractor if you haven’t already, and update the address and federal EIN for each contractor. This will ensure that you have the most current information for each contractor and that they will receive their 1099 promptly.
If you need to make any changes in the way you are paying them or withholding taxes, you’ll have a chance to update that information as well.
- Ask your contractors for a worker’s compensation certificate. If you don’t have one, you might need to add their payment totals to your payroll amounts on your worker’s compensation audit worksheet.
- If your accounting system doesn’t break out payment type, you’ll need to do that on a separate spreadsheet before you input the 1099 amounts. Contractors paid with a check will require 1099s. Contractors paid via PayPal or credit card will not. If you have paid them both ways, you will need to break it out. You can do the bulk of the work now and post the remainder of the year after year-end.
- Consider re-evaluating each contractor as to whether they meet the employee versus contractor tests from the IRS. If you are accidentally misclassifying a contractor who the IRS defines as an employee, you will be responsible for social security, withholding, and other payroll taxes, which can add up to huge numbers for small businesses.
This is a “red flag” area for the IRS, meaning they are looking to “bust” employers. However, they also have a Voluntary Classification Settlement Program for people who have been misclassifying workers in the past and want to come clean.
Following these five steps will put you in great shape for year-end. And if you need help catching up with your contractors or with any related issues, please let us know.