Operating a business usually includes purchasing supplies, products and services from others. The businesses, individuals and organizations providing the services and products are broadly referred to as vendors. A cleaning service maintaining an office can be considered a vendor as can the company caring for office plants. Paper, equipment, and supplies are purchased from vendors such as office supplies.
When working with a vendor, it is important to determine their tax filing status to ensure payments are made accurately and information is reported on the correct federal and state tax forms. A form W-9 can be sent to any vendor in the United States. This form is obtained through the Internal Revenue Service (IRS.)
The vendor completing form W-9 will provide the legal business name, tax classification (Corporation, Partnership), address and taxpayer identification number which can be an individual’s Social Security Number or the Federal Identification Number for a business. The form must be signed and is considered a legal document. 1099 vendors return the form to the business who requested the information instead of to the IRS. The business uses this information to set up an account for the 1099 vendor, process payments and file any necessary tax forms including Form 1099-MISC. If the 1099 vendor has foreign status, similar information is provided on Form W-8.
Until paid, the invoices generated by vendors are reported as Accounts Payable on the financial statement called a Balance Sheet.
Business owners need to carefully examine the relationship they have with a contractor to determine whether a person is a bona fide 1099 vendor or an employee of the business. For more information, read What is an Independent Contractor?