When dealing with vendors, make sure all of them fill out a Form W-9 before rendering payment to avoid backup withholding issues.
It’s always a good policy for your business to have each vendor fill out a new W-9 form every year. The form requires vendors to disclose whether they are set up to do business as an individual or some other type of entity.
The type of entity a vendor selects on this form should correspond to that vendor’s classification for federal income tax purposes.
The different types of classifications are:
- Individual/sole proprietor or single member limited liability company
- C corporation
- S corporation
- Partnership
- Trust/estate
- Limited liability company
- Other
In addition, the vendor must supply the business with its address and taxpayer identification number (TIN). The TIN will be either the vendor’s Social Security number or employer identification number.
The vendor uses his Social Security number if he is doing business as an individual and his TIN if he is doing business as some type of business entity.
The Form W-9 must be signed by the vendor. The signature is very important. By signing the form, the vendor is certifying the following:
- The TIN shown on the W-9 form is correct.
- The vendor is not subject to backup withholding.
- The vendor is a U.S. citizen or other U.S. person.
- The vendor is exempt from Foreign Account Tax Compliance Act (FATCA) reporting – or, if not exempt, has entered the correct FATCA codes on the form.
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Teal, Becker & Chiaramonte, CPAs, P.C.