Welcome to Zero to Xero where I show you how to make the most of Xero featuring tips and tricks, best practices, and more.

Today’s Email

• What are 1099s?

• Why do I need a W9?

• How can Xero help me collect W9s? (Video)

• Tips to reduce stress around 1099 season

What are 1099s and why should I care?

A 1099 is a tax form used in the United States to report various types of income other than wages, salaries, and tips. If you're an independent contractor, freelancer, or have income from sources like rental property, dividends, or interest, you'll receive a 1099 form.

Here's why 1099s are important:

1. Tax Reporting: The 1099 form provides a record of the income you earned from sources other than an employer. This information is sent to both you and the IRS, so the IRS knows about the income you need to report on your tax return.
   

2. Accurate Tax Filing: Receiving a 1099 helps you accurately report your income on your tax return. If you don't report the income listed on your 1099s, you might face penalties or additional taxes.
   

3. Financial Tracking: For self-employed individuals or freelancers, 1099s help keep track of the various sources of income throughout the year. This can be useful for budgeting and financial planning.

In essence, a 1099 form ensures that all your non-employment income is reported to the IRS, helping you stay compliant with tax laws and avoid potential issues with underreporting your income.

What is a W9?

A W-9 is a tax form used in the United States that you fill out when you start working as an independent contractor or freelancer. The form is called the "Request for Taxpayer Identification Number and Certification."

Here's what it does and why it's important:

1. Providing Information: When you complete a W-9, you're giving your personal information, including your name, address, and Social Security Number (SSN) or Employer Identification Number (EIN), to the person or company that's paying you.
   

2. Tax Reporting: The information you provide on the W-9 is used by the payer to fill out a 1099 form at the end of the year, which reports how much they paid you to the IRS. This way, the IRS knows about your income, and you can report it accurately on your tax return.
   

3. Certification: By signing the W-9, you're certifying that the information you provided is correct and that you are not subject to backup withholding (unless you've been specifically notified that you are).

In summary, a W-9 form is a way for you to provide your taxpayer information to someone who needs to report payments made to you to the IRS. It helps ensure that your income is reported correctly and helps you comply with tax laws.

Okay… How can Xero Help me With This Process?

Xero can help you on the payer side by collecting W9 forms from contractors so you can send accurate 1099 forms to the IRS.

Why Xero though?

By collecting the W9 form directly through Xero the information will sync directly to the contact in Xero and make e-filing 1099s easier.

This means you’re good to go the following year unless you pay new contractors.

Also, by making it easier for the contractor to get you the information you need, they’ll be more likely to get it to you!

Here’s how the W9 collection process works in Xero:

I Don’t Get How This Helps with Stress.

Many accountants wait until the end of the year before reviewing for 1099s.

Now you’re reviewing at a time when you have financial year-end close, annual tax filings, and more.

Here are some tips to help you reduce stress for yourself and your team before 1099 season:

• Demand W9s up front: Before paying contractors, require their W9 first. Contractors will have a greater incentive to send you a W9 when you’re holding their payment!
  

• Start Early: Begin gathering and verifying client information well in advance. The earlier you start, the less rushed you’ll feel as the deadline approaches. Try incorporating a quarterly review for 1099s/W9s.
  

• Organize Information: Use a systematic approach to collect and store necessary information, such as vendor details and payment records. Consider using accounting software to automate and streamline data collection.
  

• Educate Clients: Inform your clients about the importance of timely and accurate information. Provide them with a checklist of required documents and set deadlines for submission.
  

• Use Technology: Leverage accounting software and tools that automate 1099 preparation and filing. Many platforms can pull data directly from your accounting system, reducing manual entry and errors.
  

• Delegate Tasks: Divide the workload among your team. Assign specific roles and responsibilities to ensure that all tasks are covered without overwhelming any one person.
  

• Outsource When Necessary: If your firm is overwhelmed, consider outsourcing some of the 1099 preparation tasks to specialized service providers.
  

• Double-Check Data: Implement a review process to verify the accuracy of the information before filing. This can help prevent errors and avoid the need for corrections later.
  

• Stay Informed: Keep up to date with any changes in 1099 filing requirements and deadlines. Make sure your team is aware of any new regulations.
  

• Communicate Clearly: Maintain open lines of communication with your team and clients. Regular updates can help manage expectations and address any issues promptly.
  

• Plan for Contingencies: Have a backup plan in case of unexpected delays or issues. This could include setting aside extra time for last-minute problems or having additional staff on standby.

Hopefully these tips help you with this upcoming tax season!

Xero has been hard at work updating this functionality recently. If they release more in this area I’ll be sure to walk you through future changes :)

If you want to see something specific for the next newsletter please let me know. I’d love to hear from you below ⬇️