As the world of business continues to evolve, people who were once employees are now freelancers, contractors and vendors. In fact, the number of freelance workers in the United States is about 53 million, or about 34 percent of the workforce, according to a recent report by the Freelancers Union.
One advantage of contracting for work rather than hiring staff is less paperwork – withholding, social security and unemployment insurance to name a few.
However, when you hire independent contractors, the paperwork does not end. Form 1099 and W-9 replaces the traditional W-2 and W-4 of traditional business. In fact, the fines can be pretty stiff if you don’t file Form 1099 for vendors and contractors — $250 for each form not filed and $500 if the IRS determines your omission is intentional.
You must file 1099s for a variety of services including legal fees, shareholder dividends, some types of advertising and computer support. As the end of the calendar year approaches, Kimberly Logsdon, Ketel Thorstenson’s QuickBooks ProAdvisor, suggests you double check your general ledger accounts to see if there are any service providers for which you should be preparing 1099s.
Check out her article in the latest edition of the KT Addition newsletter.