Do you have your vendors ID numbers?
Business owners should be aware that the IRS is alert to non-filing of 1099 forms. Not filing them could be expensive for the business owner. I received a recent phone call from the IRS not 2 months after I had prepared an income tax return for a new client. This is the earliest I had ever got a call from them after a tax return was filed. The agent was asking about a specific line on the tax return and whether 1099 forms had been filed for these payments. This demonstrates that the service is being very pro-active and early in checking on 1099 filings. I’ve also had new clients that had prepared their own returns and have had business deductions disallowed for not reporting the income to their worker or independent contractor on a 1099 form. Getting these forms filed is one of the best ways for the business owner to protect the deductions on their income tax return.
The business owner needs to be aware that anytime they are not doing business with a corporate vendor (that is also not their employee or their legal firm), they need to give the vendor a W-9 form and request their tax ID number. Legal firms should also get them even if they are a corporation. If the vendor claims to be a corporation, you should make sure (if not apparent in their name) by checking the status of the corporation in the state that they incorporated. States now have websites to check the status of corporations. Colorado’s is located at http://www.sos.state.co.us/pubs/business/main.htm where you can search the business database (check your own while you are there). The owner or his employees should get the W-9 form back from the vendor before they start doing work so that there are no misunderstandings about taxes between the contracting parties. Note that an LLC (Limited Liability Company) or partnership is not a corporate entity even though it does have a business name. You should be careful here.
The W-9 form is available on the http://www.irs.gov/ website and they have been keeping a link to the form on the 1st page at the left under “Most requested forms.” The 1099 forms need to be completed by January 31 of the next year whenever over $600 was paid to that business or individual and then given to the vendor. All of these forms with a form 1096 then needs to be filed with the IRS by the end of February. This reporting gets more complicated as a business grows and has more transactions. A good accounting system is recommended and the ABDC or your tax advisor will advise you.
If you need further tax advice and an experienced professional, visit my blog at http://sheldon.theresponsivecpa.com/. My career is dedicated to helping the business professional, real estate owners and other investors drive their business on the right side of the road and also plan for proper documentation to minimize the legal tax burden and find strategies that are right for their business. Note my recent address change to 13721 E Rice Place #130 near Quincy and Parker Road in Aurora 80015. Office: 720-870-0949
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07/21/07