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Nonprofits Tips – Understanding IRS Form 1099 – Part 3

November 18, 2016

By now I hope that you are well versed in the preliminary step outlined within this extremely informative series on understanding the Form 1099 IRS requirements and process. If not, the material covered in this article should really drive the key points home for you. Let’s begin by looking into six useful tips on the 1099 process.1099-MISC Forms – 6 Tips On How To Issue Them? Generally speaking, a sample of the form can be seen on the IRS website however the form the IRS currently displays does not allow you to type in the vendor information. Any nonprofit organizations can conveniently and inexpensively purchase the forms at most major office retail supply stores or even from a consultant’s online resource.Please ensure to get the correct 1099-MISC forms and the correct associated envelopes, since as I have mentioned there are at least seventeen different types of 1099′s. It is quite easy to make a mistake and pick up the wrong forms such as 1099-DIV, 1099-INT or other.Proper completion of the form requires that you list the independent contractors or vendors by name, their current addresses, and tax id numbers. For sole proprietors this can be their Social Security Number and / or EIN if they are more formally organized and set up. This is another reason why it was important to collect the W-9 form back when the service was being rendered.

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If your organization uses a system such as Quick-books or other Non-profit software like Church Windows, the software will enable you to run a 1099 contractor report to get a full list of the total amount paid to vendors for the tax year. If you don’t use an accounting system such as this, then just review your check register (that you should have been maintaining) and total all payments made to each vendor.It is sometimes a good idea to reconcile the amount with the vendor around November of each year and prior to issuing a 1099.Finally, mail each individual their form so they can receive it before January 31st of the upcoming tax year. It may also be a good idea to attach a proof of delivery card in case it is every claimed that you did not send the forms in a timely manner.Form 1099 Issuance – The Vendor Side of Things!To discuss this topic of IRS compliance, I feel compelled to bring up the opposite side of the 1099 coin. If you are the independent contractor or freelance vendor and not the nonprofit organization, then you should always make it a best practice to follow-up with your organizational clients to receive your 1099 form no later than January 31st of each year.Timely follow-up will enable you to file your own personal tax returns in a timely manner. Be sure to review the amount that is recorded in Box 7 of the 1099 form. The amount recorded on the form must match the individual records and the payments you actually received in the taxable year from that client. This reconciliation is extremely important since these payments are part of your taxable income and the IRS holds you (the contractor) responsible for paying tax on it.Form 1099 Closing Thoughts

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It seems to me that it should be a well-known fact that once an organization becomes tax-exempt they also become subject to the many IRS requirements that go along with the territory. For some reason however, many nonprofits insist on remaining ignorant to critical procedures that put their nonprofit at risk.When the tax-exempt organization either intentionally or unintentionally does not collect a W-9 form, they shift the IRS reporting burden from the individual to the tax-exempt itself. A failure to issue the 1099 then gives the impression they don’t want a paper trail of their activities. If the nonprofit is not careful serious fines, penalties, and sanctions could result.If I were a tax-exempt organization, I would ensure that my procedures were air tight because it seems like the IRS has historically imposed significant fines on a per incident, per person basis. The IRS is well-known for their trademark statement to nonprofits that ignorance of the law is no excuse and we will hold you accountable. Can you say ouch?

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