Having Form W-9s on file is important for several reasons, especially for businesses and organizations that work with independent contractors, freelancers, or vendors. Form 1099’s for all eligible payments must be submitted to the Internal Revenue Service (IRS) by January 31, 2025 as well as to the recipients.  Here are several reasons why this is important for business owners:

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Compliance with IRS Regulations‍

• The IRS requires businesses to report payments made to independent contractors or vendors.
• To correctly file Form 1099-NEC or Form 1099-MISC (used for reporting non-employee compensation or other payments), you need the taxpayer's name, address, and Taxpayer Identification Number (TIN).
• Form W-9 is used to collect this information and ensures compliance with IRS rules.

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Avoid Penalties‍

• If you fail to file the required 1099 forms because you don’t have the contractor’s TIN, the IRS may impose penalties.
• Having W-9s on file allows you to file on time and accurately, avoiding fines and audits.

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‍Backup Withholding

• If a contractor refuses to provide a valid TIN (via Form W-9), the IRS requires backup withholding (currently at 24%) from payments made to them.
• Without a W-9, you might fail to withhold appropriately, which can leave you liable for the taxes that should have been withheld.

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Streamlined Record-Keeping

• Keeping W-9 forms on file helps organize your tax documentation and ensures you have accurate, up-to-date information when preparing year-end tax reports.
• It simplifies tracking who needs a 1099 form and reduces last-minute scrambling for details.

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Proof of Due Diligence‍

• If the IRS questions the accuracy of a 1099 form or payment, having a W-9 on file serves as proof that you collected the required information in good faith.

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‍When Should You Collect a W-9?

• Before paying any contractor, vendor, or non-employee service provider who may require a 1099.
• Ideally, request the form as part of your onboarding process.

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‍Conclusion

Maintaining up-to-date W-9 forms on file ensures smooth tax reporting, helps avoid penalties, and keeps you compliant with IRS regulations. It’s a proactive measure to protect your business from potential legal and financial issues.

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Journals & Ledgers electronically files Form 1099’s for our clients based on the required Form W-9’s provided to us.

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