If there’s one thing small business accountants and bookkeepers dread above all others, it’s January. The flurry of activity required to keep up with day-to-day operations while getting W-2s and 1099s ready to send out, and year-end financial statements…let’s just say it’s never too early to get ready for year end.

From many years of experience in the trenches, I’ve come to the conclusion that small businesses should give themselves a break, and start working on year end once summer vacation is over.  Labor Day is coming up, and on the Tuesday after, I’ll begin getting my clients ready for the fun fest that is coming in January.  In case you’d like to follow along, and save yourself a big headache (and a possibly a nastygram from the IRS), here’s what I plan on doing:

  1.  I’ll begin with a review of the list of vendors and other payees, and make sure I have Tax ID numbers (EIN or SSN) for each person or entity that has been paid for services (not goods or materials), and the payees are flagged for 1099 reporting.  
  1.  I always double check to make sure the landlord(s) and attorney(s) are flagged for 1099s, and TINs are on file.
  1.  For service providers without TINs on file, request a TIN using Form W-9 (Request for Taxpayer Identification Number).  I used to make a spreadsheet with vendor names and addresses, and merge it with Word form letter – but now I just email a request and attach the W-9 form.  I still use the spreadsheet to track the request, the response, and the update to the file.  Payees (other than landlords and attorneys) who are corporations are generally exempt from 1099 reporting, so I eliminate those with Corp. or Inc. in their name.  LLCs and partnerships get 1099s (for services, not goods), so I make sure I have TINs and their vendor records are flagged appropriately.
  1.  As I receive the completed W-9 forms via email, fax, or owl post, I update my tracking spreadsheet and the vendor record, and file the W-9.  I’ll reply acknowledging receipt of an emailed W-9.
  1.  On October 1, I’ll check and see what TIN’s I’m still missing, and send a follow-up message.  If the payee has a balance, I might suggest that I can’t release payment without their 1099.
  1.  On November 1, I’ll check again, and hopefully I’ll have all the TINs.  If not, I’ll send a third request, and print all three emails and attach them to the vendor record, so when I get a letter from the IRS down the road, I’ll have a defense.  I’ll also submit the TINs to the IRS for verification, to avoid unpleasant surprises next year.

By Thanksgiving, I’ll be finished with the year-end preparations, and I can focus on holiday parties, shopping, and making food I shouldn’t be eating.  When January rolls around, I’ll print a 1099 review report, “unflag” anyone that doesn’t need a 1099 (under $600), order the paper forms and envelopes, and go about other business.  I won’t be scrambling to locate a TIN, or spending hours reviewing all the records to make sure I’ve got everything I need.  My clients shouldn’t be receiving any notices from the IRS, and I won’t be working 70 hour weeks in January and February.  Can you say the same?


Download W9: www.irs.gov/pub/irs-pdf/fw9.pdf

W9 Instructions: http://www.irs.gov/file_source/pub/irs-pdf/iw9.pdf