For small-business owners, eternal vigilance on important documents is more important than ever. That includes those seemingly routine year-end 1099 forms.
If You Wait, It Could Be Too Late
In an ideal world business owners would keep up with their 1099s all year long, as my colleague Jeanne Richards recently suggested they do. Haven’t given 1099-prep a thought yet? Don’t worry — it’s not too late. Now that it’s September, it’s the perfect time to check the status of your records and get them in shape before the end of the year.
Periodically evaluating your records keeps you up to date on which vendors or independent contractors (IC) are above the $600 threshold that requires a 1099. That’s a threshold that is easy to meet without realizing it. You might have given someone several small projects that were each well under $600, but together meet the threshold requirement. Or perhaps you forgot about an IC you used for a project early in the year — now is the time to make sure you have the records you need.
Regular 1099 maintenance also provides an opportunity to verify that information for existing vendors, such as addresses, is up to date. You don’t want a 1099 form that you mail in January to come back marked undeliverable — especially now that the deadline for filing paper 1099s with the IRS has changed to January 31. You should also confirm that any new vendors or ICs have provided W-9 forms. If they’re slow to comply, that could be a sign that they lack the basic level of professionalism you ought to require of all vendors and independent contractors.
Finally, as Lori Coleman pointed out, year-round vigilance also helps you clean up your records and rid your files of vendors and ICs you no longer use.
Electronic Filing Is the Way to Go
If you haven’t already switched from paper documents to electronic files, now is a good time to start. It’s much quicker, more efficient and more secure to use a platform like Track1099 to send important tax documents than it is to snail-mail or fax paper versions. You also eliminate the risk of losing or misfiling paper documents, and you don’t have to take up valuable space by storing all the paper that a small business has traditionally accumulated.
Another Important Word about Those Independent Contractors
While you’re updating your W-9s and 1099s, it’s a good time to review the status of your independent contractors to be sure they truly are independent contractors in the eyes of the law. A recent California Supreme Court ruling ought to serve as an eye-opener to small-business owners everywhere.
As Mark Wald noted, in some cases small-business owners might be better served to shift away from using individual independent contractors in favor of vendors that furnish their own employees to provide the same services (e.g., instead of paying an individual to handle your IT issues, you hire an IT-services firm).
Bear it and Grin
Yes, keeping up with tax records and reviewing court decisions to ensure that your business is in compliance with ever-changing laws can be a pain. But that pain is mild compared to what you might have to endure if you don’t do your due diligence.