If you're a business owner, you should be tracking all year all of your contractors and the amount paid and at the end of the year you can easily look at that list and see who needs a 1099. Remember, like we said earlier, that's anyone that you paid $600 or more in the calendar year.
Speaker 2:Welcome to what your CPA wants you to know. I'm Carson Sands.
Speaker 1:And I'm Taryn Sands.
Speaker 2:I'm a CPA with over 10 years of experience helping people start and grow their businesses.
Speaker 1:And I'm an MBA with a specialization in marketing and entrepreneurship. Taxes suck and we want to make sure you don't pay more than your fair share.
Speaker 2:We're here to share everything your CPA wants you to know.
Speaker 1:In a fun and easy to understand way.
Speaker 2:Let's get started.
Speaker 1:Let's do it. It is that time of year to file all the end of year filings. We've had a lot of questions come in about what these filings are, who's responsible for them, from, specifically, business owners that are just getting started. So today we're going to explain exactly who needs to file a 1099, when they have to be filed, how to file it and all of the nitty gritty IRS details with the 1099 filings. So maybe you don't know if you have to file 1099s or not for your business. So first we'll explain that Do you have to file 1099s, who has to file these and what is the role?
Speaker 2:Well, any business that pays somebody $600 or more during the year probably has to file 1099s. Now if the person you pay is actually an corporation or an S corporation, then you don't have to give them a 1099. But if you pay a partnership or a single member, llc or just a general person contract labor throughout the year, then you will have to give them a 1099.
Speaker 1:So, just for an example, let's say you hired someone to do your website for your business and that costs $24,000. If that was paid to a contractor, then that meets the threshold of $600. So then you would be required to send them a 1099, unless they are an S Corp or a C corporation an S Corp or a C corporation.
Speaker 2:That's right. So that person would get a 1099 unless they were operating their business as a corporation.
Speaker 1:So, to make this easy, if you're a business owner, you should be tracking all year all of your contractors in the amount paid and at the end of the year you can easily look at that list and see who needs a 1099. Remember, like we said earlier, that's anyone that you paid $600 or more in the calendar year. So the next question always is how do you know? How do you know if that person is an S-Corp or a C-Corp or one? And the answer to that would be on the W9 form. So can you explain what a W9 form is when you would give it out? Who gives it out? What's on it all of that?
Speaker 2:Sure. So a W9 form is the form that the IRS created to help you get the information that you need in order to send 1099s at the end of the year. It's just a form that has a spot for a person to put their tax ID number. So, for a person, that would be their social security number and for a business, that would be their EIN or employer identification number. They would put their personal name or their business name, their address, and that's pretty much it. Once you have that, you're going to have the information that you need. Now to answer the question about how do you know if they're a corporation. Well, you can send anybody that you pay more than $600 to, or that you're planning to pay more than $600 to, a form W9. There's also a box where they can check whether they're an LLC, an S-Corporation, a C-Corporation or an individual, whenever they check that box. If they check that they're an S-Corporation or a C-Corporation, you don't have to send them a 1099.
Speaker 1:So this W9 form is sent to anyone that you're working with through contract labor and when you get that back you can tell if you need to send them or not. Now a lot of people forget to send this form. You should have on file all W9 forms for all contractors during the year, so as soon as you start working with someone you need to request them to fill out the W9 form before they start any contract work.
Speaker 2:Yes, ideally you will get that filled out before they do any work for you. Now, if you forget, you can ask them to fill it out before you pay them, and you have a lot of leverage there still because you haven't actually paid them. So they're going to want to fill that out so that they can get paid.
Speaker 1:Now a lot of people don't get it done.
Speaker 2:Now, if you get to the end of the year, then you can still send those. If it's somebody you're working with regularly, they're probably going to be good about filling that out and getting it back to you. If it's somebody that did a one-off job for you, I mean who knows? They're not really in a rush to get it back to you because there's not any incentive for them to help you get your paperwork done more easily.
Speaker 1:Exactly, and the purpose of the form is for you to get their tax information so that you can file their 1099 with the IRS. So the IRS knows that they made that money and then they have to pay taxes on that. So some people might give you the run around and not give you their information because they don't want to pay taxes on that income. We've seen that a lot too. So it's best to get that form filled out right from the start.
Speaker 2:Now, worst case scenario, if you get to that point, you did not get the W-9 filled out, you can still send a 1099 based on the information that you have. You have a name, either a business name or a personal name, and hopefully at least an address where you were sending checks. And if you have at least that information then you can go ahead and send the 1099 without a tax ID number on there. That still lets the IRS know that somebody out there got some money and that person better be reporting that information.
Speaker 1:So step one is to send out the W-9 form when you're working with any contractors. Step two is now you have all of that information and you've been tracking the amount you've paid to each contractor all year. Step three is, at the end of the year, looking to see out of that list of contractors who you paid over $600 in the year. Now step four is to file those 1099s. You will file that with the IRS and you will also be sending a 1099 to the recipient or to your contract worker so that they have a copy as well. Now we're going to explain how you can file that and what the due date is for those filings.
Speaker 2:The easy part is the due date. You have to have the 1099s to the recipients by January 31st, or at least postmarked by January 31st if you're going to mail them. This is pretty easy these days because there's a lot of software out there that you can use to get these 1099s taken care of. The forms that go to the IRS can be filed electronically and then the forms that go to the recipients will be mailed by the service that you use, and they can also get an email copy as well, and sometimes people are in a hurry to get those, so that's the fastest way to get the 1099s out. So, speaking of yearly, that's something that we use regularly.
Speaker 2:There's a different due date for the forms that go to the IRS. Now we usually say it's just easier to go ahead and send them when you have the forms sent to the recipients, because it's the same forms. But technically you have until February 28th to file with the IRS. If you're paper filing, that means if you're mailing the copies to the IRS, which there's no reason to do that If you're e-filing the IRS copies, then you have until March 31st to get those in. Again, I don't see any reason to do it this way, because when you file the recipient copies by January 31st, you have all the information you need to file the IRS copies and you can do both copies with one click of the button once you have all the information in.
Speaker 1:Yes, let's not make this any harder than it should be. You should just be getting all of this checked off your list by January 31st, so then you can start thinking about tax time. Do you want to start your own business but have no idea where to start? Does the tax and accounting part of business ownership scare you? Or maybe you just don't have the budget for CPA services right now? If this sounds like you, listen up. We've created a new business guide to help you through every step of the process so you feel confident and supported when starting your business. Our guide will help make sure you don't miss any important steps and educate you on the tax and accounting side of things. The best part is that it's priced for less than one meeting with a CPA, so don't ignore this part of the process. Use our guide to educate and empower yourself without the hefty cost of multiple meetings with the CPA. We will guide you through the initial steps, provide yearly checklist and give you things to put on your radar for the future as your business grows. And just for being a podcast listener, you get a discount. Find the link in the show notes to purchase the guide and use code podcast at checkout to use that discount.
Speaker 1:Now back to the show. So let's discuss the options that you have for filing these 1099s. So option one of course your CPA can do this for you. Especially our clients that have like a whole page of recipients will generally have us file them for them. So that's option one, and what they would need is the totals paid to each person and a copy of those W9s.
Speaker 1:Another option if you're using a software like QuickBooks, they do have the ability to file that information for you, assuming you have everything put in there okay and everything's accurate. I'm sure other softwares would do that as well, one that we love and always tell people about. If you're looking to file, just like, maybe you have one or two 1099s to file, there is a website called Yearly, which is spelled Y-E-A-R-L-I, and you can go on there and you pay per 1099. I think it's about six bucks or so, and you can just put everything in there and it will file the 1099 with the IRS. It will also mail a copy to the recipient and it will email them a copy. So everything is done all at once and you're good to go. It's very quick and easy and anyone can use this website.
Speaker 2:That's right. So if you are using QuickBooks online and you can do it through there, now you have to have all the information entered. The easiest way to do that is as you get the W-9s filled out by new contractors, enter all of their information into QuickBooks and indicate whether there's someone that might need to receive a 1099. You can do all of that through QuickBooks and if you do it properly, when you get to the end of the year the 1099s can be done almost automatically with just a few clicks of the button. If you use Yearly, you will have to enter everybody's information, but if you use the same people from year to year, it will save that information and you won't have to type it in every year. And then, of course, if you're using QuickBooks desktop, then there's something called tax1099.com and that's something we use because the data gets automatically imported from QuickBooks desktop into tax 1099 and that saves you a lot of data entry.
Speaker 1:So there's a lot of different options, just depending on your time and your budget and what software you're already using. But the most important thing is that you get those filed. You make sure that your bookkeeping is complete for the year so that you know who needs one and, if you haven't already, make sure you have a W9 for each contractor that you're sending out a 1099 for. Remember that the due date is January 31st to have those to the recipient. They have to be mailed by that date and you might as well just do all of the IRS filings at the same time, even though they have a little bit of a later date.
Speaker 2:And one other deadline if you're going to have your CPA, do it for you. Try to have it to them at least by January 24th.
Speaker 1:Yes, we always ask that we get them as soon as possible because we have a lot to do. Well, that's all we have for you today. If you find this episode helpful, please send it to a friend, or if you haven't already, please leave us a review. That is how our podcast grows and we get to more people.
Speaker 2:So until next time.
Speaker 1:Thank you for listening to what your CPA wants you to know podcast.
Speaker 2:This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional.