When it comes to filing for taxes, there are many forms to fill out and keep record of. If you are a small business owner, two forms that you may be familiar with are 1099 and W9. Both of these forms are tax forms for independent contractors, but what is the difference? In this week’s blog, we will discuss the differences between 1099s and W9s as well as best practices for preparing and using these tax forms.
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What is a 1099 form?
The 1099 form is a tax document used by the Internal Revenue Service (IRS) for collecting information. There are many types of 1099 forms but they are all used for reporting non-salary income that you earn throughout the year. Since we are focusing on the relationship between W9 and 1099 forms, we will focus on contractor 1099-NEC forms.
When a client invoices a contractor for more than $600, they are required to send the contractor a 1099. This form contains information about what they were paid for over the course of the tax year. The client is also responsible for sending a copy of the 1099 to the IRS so that the IRS can look over the 1099 and the contractor’s reported income to make sure that they match up. Regardless of the type of 1099, The due date is January 31 in the year following the applicable tax year.
How to fill out Form 1099
When it comes to filling out tax forms such as the 1099, the process is relatively simple. The 1099-NEC form itself can be downloaded on the IRS website. Most of the blue boxes will be filled in with the contractor’s name, address and their TIN that they entered on the W9. But other boxes, like box 5 and 13 will be left blank for later use.
When filling out the form, contractors should keep a copy for their files. Box 7 will tell you how much your client paid you and once the year is over they will add up all of the Box 7s to get most of the income. Contractors should also hold onto their invoices throughout the year to keep track of income that did not require a 1099. For income less than $600, a 1099 is not required but should still be reported in case of an audit by the IRS.
For clients, remember that you only need to send contractors 1099 forms if you were invoiced for $600 or more over the year. However, you will still need to keep track of this income to report to the IRS.
What is a W9 form?
Similar to form 1099, W9s are commonly used tax forms by the IRS. A W9 is the request for taxpayer identification number and certification form that is needed in order to prepare 1099s.
If you are someone who has their own business or works as an independent contractor then you will need a W9 in order to accurately prepare your 1099 and report payments over the course of the year.
How to fill out Form W9
You can download the W-9 form from the IRS website. The form itself it pretty straightforward but there are a few areas that may trip you up.
- When filling out the form, make note of the business line. You only need to fill out this line if you have a registered business name, otherwise just fill out the name line and leave the business line blank.
- Do you know what type of entity your company files taxes as? For LLCs, there are C Corporations, S Corporations, and Partnerships.
- If you don’t have a taxpayer identification number (TIN) or Employer Identification Number (EIN), you will enter your Social Security Number
Filling out and reporting your 1099s and W9s can be tedious but it is necessary to avoid fines from the IRS. However, we are here to help. If you are needing assistance managing your finances and taxes, the team at Valor Partners Is here for you.
