When paying a sub-contractor, it is extremely important that you receive all the information you will need for issuing a 1099-misc form at year-end.  That means you should NOT pay any sub-contractor until you have received the following information:

·         Legal name (This would be their first and last name if they are a sole-proprietor.)

·         Business name (This could also be their “legal” name if they are an LLC, Partnership, or a Corporation.)

·         Mailing address (This is the address they use when filing their business tax returns.)

·         Social Security number or Federal Employer Identification number, whichever applies

This information can be legally obtained by using the IRS Form W-9 which the sub-contractor is obligated to complete and return to you prior to receiving payment.  Without it, you are required to withhold 28% from their check to cover any potential tax liability, and will be required to submit that money to the IRS on behalf of the sub-contractor. 

Most small business owners are not aware of this requirement and continue to pay sub-contractors and then try to get the information the following year when the 1099 forms are being completed.  This not only delays the filing process, it can also cause the business owner to be financially responsible for any unpaid taxes.

Go to the IRS website (www.irs.gov) to their “Forms & Instructions” section to download the instructions and forms for the W-9.  The site also has instructions about reporting your sub-contractors on the 1099-misc form and details about the requirements for filing this form each year.  

Your tax preparer should be able to answer your questions about these filing requirements, and copies of these forms should be filed with your year-end business documents.

The IRS requires that vehicle usage be tracked with a mileage log or other “specific documentation” relating to business miles and vehicle expenses.  If you are audited and you do not have a mileage log the IRS can and will disallow the full vehicle deduction.  There are few acceptable excuses for not having this documentation and many taxpayers have lost arguments in tax court trying to skirt this requirement.  Examples of acceptable excuses would be that a flood or fire destroyed the records, or that they were lost during a move, but you may be asked to reconstruct what you can to qualify for the deduction.

The easiest way to track your mileage is to keep a list of where you regularly travel for business and the round-trip mileage associated with each trip.  Your list should include trips to client locations, vendors, office supply store, post office, your attorney or accountant’s office, and networking meetings.  With this list and your business schedule, you can reconstruct your business travel on a weekly or monthly basis.  The more often you update the vehicle mileage record the easier it is to remember where you went and to capture all your allowed business travel.  Absent an odometer reading, you can use the internet to map out your trips and reconstruct the mileage.  MapQuest does this quite accurately and is easy to use.

There are formal mileage logs and pre-printed forms available at office supply stores which allow you to track the date, time, starting and ending odometer reading, and the business purpose of each trip.  However, most people have a hard time remembering to use these log books, or have gaps in the records where they forgot to note the odometer readings.  Also, most small-business owners are constantly “on the run” with a million things on their mind and this is just one more detail that is easily forgotten.  The trick is to come up with a simple system that works for you and that fits into your busy business schedule.  Don’t make it more complicated than it needs to be, and don’t beat yourself up if you miss a few of the details.  It’s better to have “most” of the information than to have no mileage information at all.

Remember, the vehicle deduction is a major business write-off and can save you thousands of dollars in both income taxes and self-employment taxes each year.  Don’t put this valuable deduction at risk – track your vehicle mileage!