Business owners often work with different vendors when it comes to selling products or providing services to customers. Rarely is it the case that a business produces and sells all of its own goods or provides all of its own services. However, for business owners who are planning on working with vendors, it is important to realize the tax implications that this can have. Specifically, it is vital that all sales made involving other vendors are properly documented and taxed. One of the best ways to go about doing this is to begin by having each vendor fill out an IRS W-9 form.
The W-9 form allows business owners to accurately withhold taxes as necessary from each vendor while legally reporting the income and profits to the Federal government. Failure to do so can result in serious fines, penalties, and even criminal charges. Having a W-9 from each vendor also allows business owners to compile and send out 1099 forms to each vendor as required by state law on an annual basis. The 1099 reports to the vendor how much he or she made in profits from the business. From there, tax responsibility can be accurately determined.
A W-9 form should be filled out by each vendor and kept on file at all times, even long after the vendor stops providing goods and services to that company, such as merchant accounts or credit card processing. Copies of the W-9 form are available on the IRS website. Common information included in a W-9 include information about the particular type of vendor the business is working with, the Federal Tax ID Number, and other relevant information that will need to be used once tax time rolls around. Both the vendor and the business with which he or she is working should have a copy of the W-9 at all times. At any time information on the W-9 changes, a new form must be filled out and filed by the vendor.
Running a business can be a lot of work, especially when dealing with credit card processing and merchant accounts. Still, there is no denying the importance of keeping W-9 records from all vendors worked with.