Now that you’ve settled back into the office after your New Year’s holiday celebrations, it’s time to start considering tax reporting that you will need to take care of in the upcoming weeks.
If you are running a multi-vendor marketplace with vendors in the United States, you may have additional tax reporting requirements on top of your usual income, payroll, and sales taxes.
The sale of digital products on behalf of a vendor, for Federal tax purposes, are typically considered to be royalty payments. Those digital products can be anything from photographs, videos, music, PDF documents or e-books, WordPress plugins or themes, fonts, mobile apps, desktop software, and more.
Royalty payments over $10 paid to a vendor during the year is required to be reported on IRS form 1099-MISC.
Note: A common misconception is that only payments totaling $600 or more to an individual are reported on 1099-MISC. While this is true for many types of payments, the threshold for royalty payments is only $10.
What does this mean for store owners?
If you own a multi-vendor marketplace where you are selling digital products on behalf of your U.S. based vendors you may need to report payments to your vendors on IRS form 1099-MISC.
In order to fill out a 1099-MISC, you will need some information up front:
- IRS form W-9. The W-9 is a form that your vendors use to provide you information needed to complete their 1099-MISC forms. Information provided on this form includes their name, the type of entity they are (i.e. individual, LLC, corporation, etc.), street address, and taxpayer identification number. Pro tip: It’s good practice to request this information when bringing on new vendors so you don’t have to scramble for it at tax time!
- Verify W-9 information. Before filing a 1099-MISC, make sure you verify that the information provided to you is accurate, because there are penalties for filing with an incorrect name or taxpayer identification number. Your accountant should be able to assist with this. You can also verify it directly through the IRS, or through a number of third party services.
- Your business’ tax information. This should be fairly straightforward. You will need your business name, address, phone number, and Federal tax identification number.
- Total amounts paid. You must total all payments to your US based vendors during the year. This can be a tedious process for many store owners, especially if you have a lot of vendors. Fortunately, there is a plugin called WP1099 that will connect to your shop and provide you with an export of all the payment information that you’ll need for the year.
Filing deadlines
If you are only reporting royalty payments to a vendor, the deadline is February 28, 2018 if paper filing. Or April 2, 2018 if filing electronically. Certain other types of payments may require 1099-MISC to be filed by January 31, 2018.
In addition, your vendors should receive their 1099-MISC copies by January 31, 2018. This is to provide them with sufficient time to file their own income tax returns, which are due in April.
Failing to file by the deadline can result in fairly significant financial penalties from the IRS.
Paper filing versus electronic filing
Paper filing
You must be filing fewer than 250 forms in order to be eligible for paper filing, so for higher volumes, paper filing is not an option. In order to paper file, you must request special copies of the 1099-MISC form from the IRS. When you paper file, the IRS requires a special paper version that you can only get through them. This is so their scanning system can read the form correctly. It also uses thin carbon copy paper, so your typical laser or inkjet printer will rip the paper while printing. Filing a paper version requires an old-fashioned typewriter or special printer.
The IRS also requires an additional IRS summary form 1096 to be filed for anyone who paper files.
Electronic filing
Electronic filing (e-filing) has a lot of benefits over paper filing.
For starters, the IRS summary form 1096 is not required for e-filing, as the summary is done for you when you upload your e-file. One less form to worry about!
You can upload one bulk file that contains all of the 1099-MISC information as opposed to preparing each form individually, which will save processing time. You also receive a confirmation when the form was received and processed.
Additionally, the majority of states participate in what’s called the Combined Federal/State Filing Program. This means that when you upload your 1099-MISC e-file to the IRS, they will automatically file with your state’s taxation agency. Check to make sure your state participates in this program. If not, you may still need to file with them separately.
Sending 1099-MISC to vendors
You can choose to send an electronic PDF version of the 1099-MISC to your vendors, or mail a paper copy to them. Many companies prefer sending a paper copy to vendors to avoid the electronic version being caught in a spam filter.
If you choose to send an electronic version, your vendors should be able to give their consent to receiving the electronic version. If they choose to not receive the electronic version, they must still be able to receive a paper copy.
Additional considerations
As with any tax advice you read online, I couldn’t possibly cover all tax situations. Consequently, you will want to check with a local accountant to see if there is anything else you need to consider.
Las fechas límite de presentación y los formularios requeridos pueden variar de un estado a otro. Su contador podrá ayudarle a determinar qué y cuándo necesita presentar.
Su contador también podrá ayudarle a presentar los formularios 1099-MISC y verificar que toda la información que le proporcionaron sus proveedores sea correcta.
¿Próximos pasos?
La temporada de impuestos ha llegado. Aquí hay una lista de cosas que hacer para asegurarse de que está preparado.
- Asegúrese de obtener un formulario W-9 completo de todos los proveedores con sede en EE. UU. Si usted es una empresa estadounidense con proveedores extranjeros, ellos deberán completar un W-8BEN en su lugar. El IRS puede auditar esta información, así que asegúrese de guardarla.
- Identifique qué proveedores han recibido pagos de $10 o más durante el año. WP1099 es un plugin de WordPress que puede hacer este cálculo por usted en solo unos clics exportando todos los proveedores y el monto total pagado durante el año en un formato compatible con e-file.
- Presente su 1099-MISC ante el IRS, su agencia tributaria estatal (si es requerido) y sus proveedores. Por una pequeña tarifa, un contador local puede presentar los formularios 1099-MISC por usted. Un buen contador revisará todo por usted, lo que le dará tranquilidad. También puede usar una serie de proveedores de e-file de terceros, o presentar directamente ante el IRS.
La temporada de impuestos no tiene por qué ser estresante. Si se siente poco preparado, use estos consejos para volver a encarrilarse. ¡Se lo agradecerá el próximo año a estas alturas!
