If you use independent contractors to perform services for your business or your rental that is a trade or business, for each individual whom you pay $600 or more for the year, you are required to issue the service provider and the IRS a Form 1099-NEC after the end of the year, to avoid losing the deduction for their labor and expenses. (This requirement generally does not apply to payments made to a corporation. )
It is not uncommon to have a repair person out early in the year, pay them less than $600, then use their services again later and have the total for the year exceed the $600 limit. As a result, you might overlook getting the information needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services. Having a properly completed and signed Form W-9 for all independent contractors and service providers will eliminate any oversights and protect you against IRS penalties and conflicts.
The government provides IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law, should the individual provide you with incorrect information. We highly recommend that you have a potential vendor or independent contractor complete a Form W-9 prior to engaging in business with him or her.
Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099-NECs to service providers, they realize they have not collected the required documentation. Often, it is difficult to acquire the contractor’s, handyperson’s, gardener’s, etc., information after the fact, especially from individuals with no intention of reporting and paying taxes on the income.
If you have any other questions regarding the W-9, please feel free to email us at email@example.com!
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