Are You Following Best Practices for Dealing with Form 1099-MISC?
The IRS Form 1099-MISC is aptly named. It’s used to report various kinds of miscellaneous income, including rents, fishing boat proceeds, and prizes or awards. However, it’s probably Box 7 that gets the most traffic: Nonemployee compensation.
As you may know, the IRS requires you to distribute Forms 1099-MISC to an individual contractor that you pay $600 or more in the course of operating your trade or business for services rendered. QuickBooks can help you produce the forms every January that are due to contractors by the 31st of January. You need to do some setup in the software to allow the proper reporting. The time to do this is now, before you are too far into the new calendar year, to capture the required information as you pay these vendors.
Note: Depending on what version of desktop QuickBooks you’re using, these instructions may differ. Also, QuickBooks Online handles this process in its own way. Contact us if you have questions.
Priming QuickBooks
To get desktop QuickBooks ready to start paying independent contractors, open the Edit menu and select Preferences | Tax: 1099 | Company Preferences. Check “Yes” in front of “Do you file 1099-MISC forms?”
Notice there are links that refer to “mapping” your accounts. Every transaction you create in QuickBooks needs to be linked to an entry in your Chart of Accounts. Please do not try to do this on your own. Making changes in your Chart of Accounts is something that requires accounting expertise. We can help you complete this step.
Creating Vendor Records
You will need to create a record for each independent contractor. QuickBooks considers these vendors. Open the Vendors menu and select Vendor Center. Click New Vendor to open a blank, tabbed record. You can complete much of this information by yourself, but again, you may need our help with “Account Settings.” When you select the “Tax Settings” tab, you’ll see a field for “Vendor Tax ID.” You should enter your contractor’s Social Security number here. Be sure to check the box in front of “Vendor eligible for 1099.” Click OK when you’ve completed all of the necessary fields.
When the time comes to pay independent contractors, you would handle this like you handle any other bill in QuickBooks.
Printing Forms 1099
QuickBooks can help you produce your Forms 1099. The Forms 1099-Misc are due to the recipients by January 31st each year. Proper setup of a vendor is key to facilitate a summarized list of recipients. You can print the forms yourself or we can assist you.
One More Reminder…
Independent contractors should provide you a Form W-9. QuickBooks does not supply this form, but you can get one here.
Paying independent contractors is much simpler than preparing employee payrolls, but it’s critical that you get everything set up right. We strongly encourage you to call us for assistance.