The 2016 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 mailed to the taxpayers who worked for you in 2015 by February 1; you must file the 1099s with the IRS by February 29 if filing by paper or March 31 if filing electronically. You are generally required to submit a 1099 for anyone who earned more than $600 from your company during 2015.
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. 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 from the IRS website.
2. Get Your Contractor Information Straight
Keep key information handy and have the contractor sign an Independent Contractor Agreement. 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. Accounting software like QuickBooks can help you maintain a database of contractors you’ve hired and use that information to create and send out 1099s. 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.