Why repeat a task that no one enjoys, when a simple procedure can make life a lot easier in the future? (Remember the definition of insanity? Here’s a way to stop doing the same thing.)
Simply follow these steps:
1. Use an alphabetized accordion file and label it "W-9's".
2. Begin with the current form W-9's from vendors and independent contractors that you already have, double check that they are current and entered into your accounting software. Be sure to indicate in your software if they are eligible for a 1099. Refer to the rules about 1099's if you need help, and remember, the W-9 is your way to know if a vendor should receive a 1099.
3. As you review your W-9s and the information in the software, file each reviewed and completed W-9 in the accordion file, alphabetically.
4. As you add new vendors and independent contracts throughout the year, here is the important part - REQUIRE A COMPLETED W-9 BEFORE YOU PAY. This is a common practice in larger companies, but for some reason, most small businesses fail at this point. There are two important pieces to making this happen
o Just do it. People seem to think that asking for the W-9 up front will slow things down, create more work, or offend. When compared to the time and energy (extra hours, extra pay, etc) of waiting and doing later it's really a no brainer. Keep a blank W-9 in pdf and immediately email it to a vendor when they send the invoice. (This is also good if you are still trying to get W-9's). Remember, we all have to provide them, and most businesses are either expecting them, or have them pre-filled and ready to send to you.
o If you have accounting staff, have your staff's back. I often hear that a vendor complains to their contact in the company - an owner, sales rep, whoever - saying that they don't want to provide it or will get to it later. This form, usually takes less than 5 minutes to fill out and most businesses already have a current one ready to be emailed to their customers. So, backup your staff and reinforce the need to get the W-9 before payment can be made. It's really easy and the vendor will understand (and, if they don’t, be suspiscious).
5. If vendors inform you of changes in address, business name, etc have them send updated W-9's and update in the system as soon as you receive it. Then, when filing, keep the original but write a slash, x, or whatever you use to indicate that it was superseded.
6. At the end of the year, the preparation of 1099's then becomes a quick review of any new or missing data, determining which vendors have met the reporting ceilings, and the income type to determine which income boxes it should be reported in.
By consistently doing steps 4 and 5, there should be no real extra time needed at year end, and everyone involved will feel less stress about 1099’s.
One of the benefits to keeping this W-9 file in good order, is that when (not if) your business is audited you will already have your W-9's on file. That is LESS WORK and LESS STRESS.
PS - In one year, I had an experience in which there was a state sales tax audit, and Federal tax audit and bi-annual bank audit. All of these entities required the W-9 file and having this system in place kept us from a potential huge time drain, overtime pay, and no penalties for not having sent 1099's to qualified recipients.