The year is drawing to a close and we’re crossing into the 11th month. Before you become enmeshed in the celebrations and obligations that the holidays demand of us, do yourself a favor and commence your tax planning. Create an accounts receivable and invoicing strategy once you’ve decided when it would be most advantageous to receive payment for services rendered in this calendar/ tax year or the next. IRS Form 1099-MISC will be at the center of the action; understanding when you’ll need it and when you might avoid it is your goal.
The payment in question is $600, whether it was paid or received by your organization. Review the accounts receivable history of clients for whom you performed small jobs earlier in the year. If a client paid you less than $600 in this calendar year, you will not receive or need to file a Form 1099-MISC for the money earned on that assignment.
Start with the easy stuff. If you find yourself in mid-contract with a client as December approaches and the project isn’t urgent, might it be possible to work until just before Christmas and then resume work in the first week of January, if it appears that will allow you to cap your billable amount at less than $600 for the client in this calendar/ tax year? That can be one less 1099-MISC to file and a little more money added to your P & L.
If the client has a deadline don’t even think of such a thing but if there is no urgency, why not ask the client if s/he might find it more convenient to take a “holiday break” starting in mid or late December? Many employees take vacation days at the end of the year in a “use it or lose it” strategy and offices can be short-handed just before Christmas and through the end of the year. I suggest that you refrain from mentioning the tax implications. Frame your suggestion as a way of being sensitive to what may be going on in the client’s office, i.e., customer service.
Similarly, might you be able to defer until the New Year certain invoices, as a way to keep a lid on this year’s income and taxes and wait until the first week of January to send accounts receivable for work that was performed in December? Let a couple of hours work spill over into January and make your New Year invoice legal.
Now let’s consider the 1099-MISC forms that you will generate and send. Did you hire any sub-contractors to help you fulfill the terms of a project? Have you hired a part-time bookkeeper or social media expert or editor for your newsletter? If you paid $600 or more to anyone for business services or rents in this calendar/ tax year, then you must send that individual/ company a Form 1099-MISC no later than January 31 of the upcoming year.
So that you will have the information to complete the Form 1099-MISC, it will be necessary to request that all of your vendors and other business services providers complete a Form W-9, ideally before the work they perform commences. Download Form W-9
Among the important pieces of information that the W-9 will surface is if your service provider’s business is incorporated as a chapter C or S entity, or an LLC or partnership that is taxed as a C or S corporation. Along with commercial rent paid to or through a property management company (instead of the property owner), a 1099-MISC will not be required for those types of entities when payments for services rendered meet or surpass $600.
Payments for services rendered made by gift card, debit, or credit card are not to be included in the 1099-MISC tally. Instead, the card issuers will send a Form 1099-K to your subcontractors, vendors, or you when the amount paid for business services rendered meets or surpasses $600.
Obtaining the 1099-MISC is an adventure. You must order forms from the IRS, or visit an IRS service center and pick up a few. The form is not available for downloading. Click here to order Form 1099-MISC.
Thanks for reading,
Image: The Tax Collector, 1542 Marinus van Reymerswaele (1490 – 1546) Courtesy of Alte Pinakothek Museum in Munich, Germany