What Tax Forms Do I Need for Contract Work?
Everyone who works with small businesses needs to be aware of at least two crucial documents for tax purposes. Specifically, we’re talking about contract work. That refers to work someone who’s not an employee does for you. Small business bookkeeping is not as complex as it is for multinational corporations. Doing it wrong can get you in just as much hot water with the IRS, though. According to their own website, these are the two forms that are essential to understand.
W-9 and Feelin’ Fine
The first form is called Form W-9. The IRS lays out clearly how to use it:
If you’ve made the determination that the person you’re paying is an independent contractor, the first step is to have the contractor complete Form W-9 (PDF), Request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the worker. A TIN may be either a Social Security Number (SSN), or an Employer Identification Number (EIN). The W-9 (PDF) should be kept in your files for four years for future reference in case of any questions from the worker or the IRS.
That last part is why it’s so essential. All of your small business bookkeeping needs to balance out. If there’s ever any question, you need to be able to present proof of the business relationship in addition to actual payments made. This form provides that proof. It’s for everyone who does work for you, but who is not your own employee. It also applies if they’re not an employee of another incorporated firm that you’ll invoice.
The W-9 is a form that the contractor must fill out for you. You’ll just need to keep it on file for at least four years for compliance and auditing purposes.
1099: Our Powers Combine
When it comes time to actually report the payments and earnings from contract work to the IRS, you’ll need a form 1099-MISC.
Form 1099-MISC (PDF) is most commonly used by payers to report payments made in the course of a trade or business to others for services.
If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-MISC (PDF) needs to be completed, and a copy of 1099-MISC (PDF) must be provided to the independent contractor by January 31 of the year following payment. Starting with 2016, you must also send a copy of this form to the IRS by January 31.
Also note that independent contractors may have their own employees or may hire other independent contractors (subcontractors). In either case, they should be aware of their tax responsibilities, including filing and reporting requirements, for these workers.
There are certain situations where a 1099 is not required. These exceptions are listed in the 1099 Instructions (PDF).
This form is where you report the actual money. That makes it crucial not only for your tax compliance, but also your small business bookkeeping. You don’t need one for every individual service. Rather, you’ll need one of these forms each year for each contractor.
That’s as long as their labor was worth over $600 in total during the past year. If you purchase or provide services of less than $600 in a year from an individual, you’ll still need to make careful note of it.
Small Business Bookkeeping During Tax Time
Tax time is a headache for many small companies because of these and a myriad of other forms. SyncLedgers helps cut through the clutter. We compile and organize all of the documentation you require. We then work directly with your accountant or other tax professional to make sure that you can maximize your deductions and file on time. Contact us today to free your business of that burden!