As with most things tax related there is no simple answer. When it comes to issuing 1099's from your company this is the case.
The purpose of the 1099's is for the IRS to track what is paid from your business to other businesses and individuals for services.
In the past, before the 1099 requirement, the IRS could not track service payments as the identifying numbers were not obtain related to the payments made. Businesses were not required to validate the payments so if they had a check written and an invoice that was all that was required. In a large percentage of the businesses and individuals receiving the payment the income was not reported. This "loophole" was not very popular with the IRS so they implemented a requirement for obtaining the social security number or EIN for the person or businesses providing the service work. Hence the W-9 requirement and the issuance of the 1099's.
If you are purchasing services the best practice is to obtain a W-9 from the businesses and individuals. More importantly is that you need to issue the required 1099's. In recent years the IRS tracking software is becoming increasingly good at determining non-compliance.
In 2021 the penalties are increasing for non compliance and can reach $550 per 1099 not filed. The filing deadline without penalty is February 1, 2021.
There are a number of exclusions on this requirement so give me a call at (303) 351-2852 and we can discuss this.
