There are a couple of easy methods to get the info needed. One seems to be a lot more trouble and less likely to produce good results, but is most common.
1. (Most Common)
In November and December, your office or bookkeeping staff will start to go through their records and determine from whom they need W-9. Then, it's a push to send out, receive and enter that info.
Once January rolls around, they do another look at the list, maybe try to followup and then get out the 1099's.
This method works, but could be better-you are dealing with year end close, other planning demands, holidays and generally reduced output. And, since you have already paid the recepients, if they don't want to return the W-9 back to you, thinking that you won't send a 1099 if you don't have their tax id number, there is little that you can do.
2. Here is what I like to do. And it has worked wonders when I have streamlined accounting processes, departments and gone into audits (income, sales tax, bank, etc)
Yes, do the annual review. But, create the process and discipline at the beginning of the year - starting with new vendors. Make it a rule and stick to it.
- As part of any new vendor setup, send them a W-9. Inform them nicely that you are required to have one on file for every vendor. Then, if they send it back to you quickly-GREAT! Thank them for taking care of it so quickly.
- If they lag, but send you their invoice and ask for payment, tell them that it is your policy to have received the completed W-9 back before payment may be issued. If you stick to it, and do not pay them until you recieve the W-9 back, you would be surprised at how much more compliance you get.
You will find, that because you have done this practice all year, the year end review and getting out the 1099's is so much easier, even for the very small, sending out only a couple of 1099's.
3. I almost forgot this one- have your bookkeeper or accountant do it. This works really well when you only have a few, but don't ask them on the last day of January.
The IRS has a good information page on the Small Business section, and the instructions for the W-9 and F1099's are actually pretty easy to follow.
Here are the basics:
- If you paid $600 or more in a calendar year for rents, services, prizes and awards, to anyone who is not a corporation, send them a 1099.
- If you paid at least $10 in royalties or broker payments, send them a 1099.
- If you paid an attorney (gross) $600 or more, (no matter of entity type), plan on sending them a 1099.
There are different boxes on the Form 1099-Misc. The most common ones are:
3. Other Income
7. Nonemployee Compensation
14. Gross proceeds paid to an attorney
The form you need to send to vendors and other service providers is the W-9. The best thing here is to use the updated form that the IRS publishes. It is updated every year or so, and there is a new one dated Dec 2014 on the IRS website, which has additional disclosures on it regarding required FATCA reporting, so it's a good idea to send this to vendors each year.
There are other 1099's that you should be aware of. If you pay interest, even on a shareholder/member note, then you need to send the recipient a 1099-INT, and not a 1099-MISC.
PS-Don't forget that the deadline for recipients to get their 1099's is Jan 31!