Move over, holiday merriment and new year optimism. Although the IRS says the tax season starts later in the month, for small businesses is begins January 1.
During this time, you may only find reassurance in the fact that everyone else is just as panicked and overwhelmed as you are. Sifting through forms, closing your books, reading up on 2018 tax reform details, and maintaining business as usual? There’s got to be a better way.
The long and short of it is all about process, preparation, and prioritization. Alliteration aside, these are the foundational pillars to keep in mind as you approach tax season in the present and plan for it in months ahead.
For starters, let’s narrow our view to January to dos. This month is all about payroll tax forms, the W2 and the 1099. Hopefully you partner with an amazing payroll processor such as Gusto who will distribute your W2s, so today we will focus on the 1099.
Who Gets a 1099?
While a W-2 is associated with employees, a 1099 (more specifically, a 1099-MISC) is often distributed to contractors as a means of reporting non-employee compensation to the IRS. It’s a step in the subcontracting process that is regularly overlooked or disregarded by small business owners and can subsequently result in costly penalties.
To avoid said penalties, familiarize yourself with who on your team should receive a 1099 to begin with. Outside of any freelance help utilized throughout the year, you’ll also need to consider other service providers and/or LLCs. This includes business income of $600 or more spent on things like outsourced cleaning, maintenance, rent, legal, IT, and more.
Best Practices for Managing 1099s
With an understanding of who on your team should be receiving 1099s, there are a number of steps you can take in streamlining the preparation and distribution process. It’s a new year so don’t hesitate to change your process now to avoid unnecessary headache come January 2020.
Creating a Contractor Package
Before doing business with any of your contractors, make sure they’ve been sent and completed a “contractor package.” This should essentially be a packet of documents that includes a contract listing relevant terms and conditions, a W9 Form, NDA, and any other forms that might be needed for documentation.
As tempting as it may be to bypass this, do not get in the habit of paying contractors without having their W9 on file. The last thing you want is to be scrambling in January, trying to contact them for an address and social security number before the end of the month.
Run Your 1099 Wizard Quarterly
If you use QuickBooks, the 1099 Wizard is functionality that should be utilized quarterly to manage the W9 forms received. Making a habit of doing this multiple times throughout the year will ultimately save you time and stress in January.
Reconcile Books by December 31
Before you can even begin to tackle 1099s in January, you’ll need to reconcile your year-end books. And in doing this, your budget is your friend — make sure the story your numbers tell adds up.
Distribute Payroll Tax Forms by January 31
January 31 is the general deadline for distributing (i.e. postmarked and out the door) payroll tax forms. If this date falls on a weekend, the IRS may give you a bit of leeway, so run a Google search each year to learn of any changes. This includes 1099s for all of your qualified vendors. If you’re looking for a user-friendly tool to help you through this process, I highly recommend Gusto. Once your 1099 qualified vendors are entered and paid through Gusto, they’ll take care of sending off payroll tax forms to employees and contractors automatically.
Don’t let taxes sneak up on you. Let the team at Officeheads put the right checkpoints in place throughout the year to ensure smooth sailing into tax season and beyond. Contact us today for a free consultation!