I am drowning in W-9, 1099, sea of tax confusion, what am I supposed to do?
Here the scenario: new business owner is asked by a customer for their social security number. That’s private. Why are they asking me for my information? They say they want to send me a 1099. What am I supposed to do?
I am asked all the time by business owners what is a W-9, a 1099 and, what are they for and when am I supposed to use them?
Let’s end the W-9, 1099, a sea of tax confusion right here for you.
Two Rules that will end the W-9, 1099, a sea of tax confusion
Rule Number 1
You do work for a client. They want a tax deduction for the money they pay you. A W-9 is the form that tells the client whether they have to report the money they pay you to the IRS.
If the business owner is a sole proprietor the answer is yes. With some exceptions, if the business owner is a corporation, the answer is no. Either way, the W-9 is the client’s proof of what it needs to do. An example where you as the client don’t need a W-9 is where you are getting your personal family photos taken.
Rule Number 2
A 1099 is the form used by the business client to report to the IRS and the business owner, how much the client paid to the business owner for services during the year. The business client wants to deduct as an expense on their tax return the amount paid to the business owner providing the service. If the amount of money paid is less than 600 dollars, then no 1099 needs to be issued.
I had this real life question come up with a photography business.
The photographer had done a personal photo shoot. The client later called asking for the photographer’s social security number. It seemed odd. The photographer called me up and we talked about the situation.
Turns out the client wanted to deduct the personal photo shoot expense on his business tax return. As such, he needed the photographers W-9 so he could give her a 1099 and take the tax deduction.
I told the photographer that since she is reporting the income she received from the client anyway, as she should, that she has no downside risk of providing the W-9 to the client.
The client bears all the risk. If the IRS audits the client’s tax return they would have to explain how a personal photo shoot turned into a business deduction. If the IRS audits the photographer she has reported the income. As such, she has done everything she was required to do.
Questions about these tax forms, what they mean and how they can be used for your benefit is the core work of our business.
The wrong choice and wrong decision can result in substantial penalties and money. It is better to be armed and prepared when it comes to taxes.
End Your W-9, 1099, sea of tax confusion Today
Take action by creating a long range plan for your business that will help you keep more money in your pocket rather than the government’s.
Set up a meeting with one of our tax professionals and discuss ways to position your company for success by giving us a call at (760) 579-0079.
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Unless your situation is very straightforward we are well positioned to find ways that will more than compensate you for the time and cost you spend with us.