Year-End Reporting: QuickBooks and Form 1099
As another year end is approaching, now is a great time to make sure you have the information needed to file the required year-end IRS documents. Filing Form 1099s is an IRS requirement and is used to report different types of taxable income. Analyze your financial information for data that meets the requirements for filing 1099s. The IRS uses Form 1099 to match income reported on an individual’s return to the 1099s filed to ensure income is not underreported. Effective for forms filed in 2016 (for 2015 calendar year), the penalty for failure to file Form 1099 is $250 per non-filed form. If the lack of filing is considered to be intentional, the penalty is $500 per non-filed return. This can become a costly error to businesses!
The most common requirements are 1099-MISC to report payments of $600 or more to independent contractors or other persons who render services to the employer’s trade or business and do not qualify as an employee. Form 1099-MISC is also used to report rent payments and attorney’s fees paid in the course of the trade or business of $600 or more. If the payment was made to a business, you must report the business name with its Federal Identification Number (EIN). If the payment was made to an individual, the person’s name and social security number are required. Only in the case of attorney fees are payments to corporations required. Form W-9 is used to obtain this information. Please begin to request completed Form W-9s for those vendors you may not already have on file.
It is increasingly important for you to keep Form W-9 on file. Form W-9 is used to obtain Taxpayer Identification Numbers (TINs). You do not file this form with the IRS but keep it in your files. This document will be crucial in an IRS audit. You may be required to holdout “backup withholding” if all paperwork is not in order. Form W-9s should be completed before you make any payments since you could be held liable for the backup withholding.
Once the Form W-9 is received from the vendor, information can be either verified or setup in QuickBooks. “Preferences” is where you setup QuickBooks to process Form 1099s. It is very important to remember when entering transactions that you distinguish between a “vendor” and a “customer” because you may have a company that is both. If you do not choose the “vendor” when entering the transaction it will not be included in the vendor 1099 total. Do not include payments made by debit cards or credit cards in the 1099 amount. It is recommended using the 1099 Wizard within QuickBooks. Within the wizard you can review vendor information, map the chart of accounts, verify totals and print or efile the 1099s and 1096. If mailing, it is recommended you send certified mail to the IRS to verify receipt.
Some suggested general ledger accounts to review for 1099 data are:
- Advertising (some advertising is classified as a service- such as website design)
- Computer fees/support
- Contract labor/ Outside services
- Dividends (C Corporations)
- Entertainment
- Equipment Rent
- Fixed Assets- go through your fixed asset accounts to pick up any large repairs or services that you may be capitalizing
- Interest Expense
- Interest Income (any mortgage interest received)
- Laundry and cleaning
- Leasehold improvements
- Legal & Accounting or Professional Fees
- Miscellaneous Expense
- Promotional
- Rent
- Repairs & Maintenance
- Royalties
- Subcontracting
- Trucking
- Vehicle expense (for repairs)
- Wage garnishment liability accounts (for garnishments paid to attorneys)
Ketel Thorstenson, LLP can help you with determining which Form 1099s should be filed and assist with electronic filing of such information. Call our Accounting Services Team at 605-342-5630.