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Overview of the Business Valuation Process
Did you know the Internal Revenue Service (IRS) requires businesses, including dental practices, to collect certain information about individuals and businesses you pay annually? Most business owners, including dentists and office managers, don’t know they need to collect a W-9 form, or they do, but the process of collecting them falls off the radar from time to time. This simple form takes only a minute to complete, but has big ramifications for your dental practice if not collected.
The IRS uses the W-9 form to verify and certify you are working with legitimate businesses paying taxes by gathering information such as their complete legal name, address and taxpayer identification number.
In general, your dental practice is required to collect a W-9 from any business or independent contractor it pays more than $600 to in a calendar year. The $600 rule applies to labor and services. That means whether you are paying a web designer to build and maintain your website, a marketing agency to create advertising materials, or an accounting firm to complete bookkeeping or tax work; you need to collect a W-9 from them.
At the end of each year, your dental practice is required to file a 1099 by Jan. 31 to report payments of at least $600 (in total) to these vendors. As a best practice, consider implementing a routine of requesting new vendors to provide a completed W-9 before you process the first payment for services. Having a completed W-9 already on file makes this process much smoother and helps you to avoid any penalties for late filing. For every W-9 you fail to file, your dental practice may be fined up to $50 per instance.
Although, you’re not required to, the best rule-of-thumb is to collect a W-9 for any vendors you pay, even if it falls below the $600 threshold.
Running a dental practice, you can get inundated with forms, but the W-9 form is not one to forget about. Taking steps ahead of time by collecting W-9’s can help you stay on the right side of the law at tax time. Have questions on how to put this process in place and ensure compliance? Contact Doeren Mayhew’s dental CPAs and advisors – we can help.
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