Holiday Bookkeeping
Amidst your celebration, a quick request to your vendors will make 1099s smooth in January
December is a month for family, time away from work and celebration. While I completely support all of this, I urge you to start collecting your vendors’ W-9s now to ensure a painless January. I’ll walk you through the Why, Who and How of the 1099 process - while prioritizing brevity so you (and I) can get back to watching Elf on repeat.
But first…
December House Keeping
There are no FILING deadlines in December; however,
BOI reporting is due JANUARY 1, 2025.
The penalty is $591 per DAY it’s late, so make this a priority if you haven’t already. We dove into detailed handholding in last month’s newsletter. If you’d prefer to hire out this task, your friendly neighborhood bookkeeper is always standing by to support you.
December is also a great time to schedule a tax planning session with your tax pro, so you can take recommendations and make adjustments before the year closes. They are typically less busy this time of year, but don’t wait to schedule your appointment as they also take time off in December for the same reason.
Lastly, 1099s are due January 31. I’ll remind you again next month, but now is when you should start taking action for that very simple filing.
Why 1099?
1099s are how the IRS gets small business owners to "tattle" on each other. What does that mean? Well, 1099s – specifically, 1099-NECs – tell the IRS when you’ve paid a non-employee $600 or more during the tax year. If your business paid a contractor/freelancer/vendor/service provider for services and you’d like to claim that expense as a deduction, you need to file a 1099 informing the IRS that the vendor received income from you. This puts the vendors’ income on the IRS’s radar, to avoid any under-the-table under-reporting of non-employee income. In order to secure your deduction, you as the business owner, are required to file a 1099, which reports how much you paid each *eligible* vendor (more on eligibility in a moment). Each 1099 you issue sends a form to that vendor (helping them with their own taxes) AND a copy to the IRS, giving the IRS a heads up on how much income YOUR VENDOR should be reporting. If you don't send out 1099s to eligible vendors, then you're left with 2 undesirable choices:
Recategorizing that vendor's expense as an Owner's Distribution - and paying tax on that money: BOOO!
Take the deduction and risk losing it if audited, along with incurring the associated penalties: Double BOOO!
Who are these *Eligible* Vendors?
Not all vendors need a 1099. The criteria are:
Service providers only: Vendors that provide goods don’t need a 1099.
You paid them over $600.
You paid them from your bank account. If you paid the vendor with a credit card, the credit card company issues the 1099 to the IRS, so it’s off your shoulders.
The vendor entity is a Sole Proprietor, LLC, LLP or Partnership -Note: a major exception here is that Lawyers always require a 1099, regardless of their entity type.
If you’re unsure of a vendor’s entity type, they should indicate it on the W9 (see below). However, some vendors forget to check the appropriate box. When in doubt, send it out! It’s better to err on the side of caution here. There’s no penalty for sending a 1099 unnecessarily, aside from the $2-$5 payment for the filing, and there is a risk to not sending one that should have gone out.
If you’re using QBO and have been including a vendor name each time you categorize an expense, here is a short video showing you how to create a list of vendors that may need a 1099:
1099 vs W-9
1099 is the form that you file with the IRS, one for each vendor.
W-9 is the form you have your vendor fill out. It collects the vendor information you need to file the 1099. The image below is linked so you can download or print the form and get it to your vendors:
The best time to collect this W-9 from your vendors is BEFORE YOU PAY THEM. People are WAY more compliant when receiving their money is contingent on their compliance. If you have vendors that you don’t expect to pay again this year, the second best time to ask them to fill out the W-9 is right now.
If you’re not using Relay bank, here’s another reason to consider switching:
Relay has an integrated ach/check bill payment system FREE with all bank accounts. Even better, the system can automatically require your vendors to submit a W-9 before they get paid! It’s another automation to keep you compliant while reserving your bandwidth for the activities that make you money.
If you don’t bank with Relay, then email the vendors from the list (see video above). Most people are accustomed to the process and will happily hand it over. The others may require some persistence, which is why now is the time to start.
Once you have the vendor’s W-9, you’ll file the 1099 after January 1st and before January 31st. You can do it within QBO if all your vendors are set up properly, or you can use websites like www.track1099.com. The hardest parts of the process are:
accurate bookkeeping all year long (do you need help with this? Click here!)
collecting W-9s from all eligible vendors
After that, the actual filing part is simple - you can do this!
IQBK Client Highlight
Clarissa Black founded Pets for Vets in 2009 and, like me, she is a former dolphin trainer. She applied her expertise of Learning Theory to create a matching program that thoughtfully and compassionately creates lifelong bonds using the most effective, least invasive training methods for veterans and pets alike. Her Satellite Training team consists of several former dolphin trainers and I’m so excited to say I’m in the onboarding program to become one of her Satellite Trainers, too. I’m honored to be a team member in both the accounting and training capacities of this amazing and mission-aligned organization.
As Giving Tuesday is tomorrow, December 3rd, please consider giving to Pets for Vets, supporting the profound impact they have both on the veteran community and animal shelters around the country.
Check them out on:
Their website
On Facebook
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On Linkedin
Or Donate here
Thanks for reading!
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If you want to discuss bookkeeping questions, hop on my calendar for a no-cost discovery call, I’d love to chat.
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