The 2014 tax season is fast approaching, which means small-business owners who pay independent contractors must prepare to file 1099-MISCs. Like W-2s for full-time employees, 1099s for freelancers must be filed to the IRS — and mailed to the taxpayers who worked for you in 2013 — between Jan. 1 and 31. You are generally required to submit a 1099 form for anyone who earned more than $600 from your company during 2013.
Don’t let the process complicate your already busy schedule. Here’s how to get organized and stay compliant year-round.
1. Ask your contractor(s) to complete a W-9. As soon as you bring on a freelancer, ask her to complete and return a W-9 form. The IRS requires you to collect this form from all independent contractors, and you’ll need to keep it on file for four years. Tip: Download Form W-9 [PDF] from the IRS website.
2. Get your contractor information straight. Keep key information handy. Beyond the individual’s or company’s name, address, and taxpayer identification number (all of which appears on the W-9), you’ll also want to include phone number(s), email address(es), and contracts or agreements in your records. Tip: Your contractor’s taxpayer ID is either his Social Security number or his employer identification number.
3. Maintain detailed records. If you don’t have an accountant, set up an effective system for tracking payments to contractors yourself. You could use services like Intuit Online Payroll, 1099 Central, or QuickBooks, or even use a basic spreadsheet. Tip: If you’re paying freelancers via a credit card or a third-party service such as PayPal, track those payments separately; recent IRS regulations mean you’ll need to exclude them from the 1099. Instead, they will be reported by the payment processor on form 1099-K.
4. Pull it all together now. January can be a hectic time. Among other things, you’re required to get copies of tax forms to all employees and contractors by the end of the month. To avoid last-minute scrambling, costly errors, and amending your IRS filings, double-check that you have the most up-to-date information on file for everyone now. Tip: Use an e-filing service to prepare your 1099s to avoid the hassle of handwriting and mailing them.