At bookskeep, we are always looking ahead and planning for the next quarter, the next year, the next awesome thing to keep us focused and at the top of our bookkeeping game! This time of year, we're looking at year-end and all the reporting that has to be done for our clients to help them prepare for tax time when January rolls around.
Filing 1099s electronically is easy!
There are quite a few tasks involved in these preparations, and while some of them can get complex and cumbersome, filing 1099s for our clients isn't one of them. If you have the information you need from each vendor, preparing and sending the 1099s can be done electronically, using an online service such as Track1099, which is the tool we use for our clients. Filing electronically really simplifies this task. Great news, right?
More great news is that the IRS allows you to exclude any payments you made by credit card, debit card, gift card or third-party payment network such as PayPal. So, if you pay by these means, which many of our ecommerce clients do, you do not have to issue a 1099, even if the total payment amount was over $600. If you didn’t pay using an electronic method last year, perhaps you want to start. Work that out early with your vendor or subcontractor so you're prepared for 1099 prep time next year!
Basic 1099 guidelines for your ecommerce business
- Who should receive a 1099? You are required to issue a 1099 to all vendors whom you have paid at least $600 in rents, services (including parts and materials), prizes and awards, or other income payments for the normal course of business during the current calendar year. This includes individuals, sole proprietors, attorneys, landlords, partnerships, Limited Liability Companys, Limited Partnerships, or Estates.
- Who does not need to receive a 1099? You do not need to issue a 1099 to vendors who were paid electronically, even if the total payment for the year exceeds $600. You also do not need to issue a 1099 for a payment made for personal expenses; just payments you made for your trade or business.
- Who is considered a vendor or subcontractor? Any person or company you have paid for business services who is not your employee.
- How do you know if someone is an individual vs. a sole proprietorship, LLC, etc.? When you first contract with someone, you should request a completed W-9 form. The vendor is required to report their status to you so you can file properly.
- Attorneys. You are required to send attorneys a 1099 if you paid them more than $600.
- When are 1099s due? The IRS requires 1099s to be issued to vendors and filed with the IRS by January 31st.
Implement a process for collecting vendor tax information
You don't want to wait until it's time to prepare your 1099s to find out that you're missing critical information from your vendors. Whether you are preparing them yourself or your bookkeeper or CPA is doing it for you, it's frustrating, isn't it? One of the best business practices you can implement is to request a W-9 from any vendor you expect to pay more than $600 as part of the contract process. This will give you the vendor’s mailing information and Tax ID number, and it will require them to indicate if they are a corporation or not.
Don’t ignore the 1099 process!
Talk with your bookkeeper or CPA to make sure you comply with the IRS requirements and avoid penalties. For more information and instructions on 1099s and the IRS guidelines, visit IRS.gov/1099s.
If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!