1099 Vendors - 7 Tips to Protect Your Clients and Customers

Do you receive 1099s from clients, customers, or others? Did you know that if your customer is selected for a work comp or payroll tax audit, funds paid to you are at risk of being assessed?

Like me, I'm sure you don't want your customer to pay work comp or payroll taxes on funds paid to you. Here are seven steps you can take to virtually eliminate this risk:

1. Get a Fictitious Business Name. If the checks are made payable to your fictitious business name, this makes it clear to an auditor that checks you received were paid to a business, not to somebody who might actually be an employee.

2. Always Give Invoices. In an audit, the auditor may ask your customer if you provide invoices. If your customer can produce those invoices, this goes a long way to show that you are a true independent contractor.

3. Invoice for Regular Amounts. If you can compute a flat fee for your services, all the better. When your customer pays you by the hour, this is a red flag to the auditor that maybe you are actually an employee.

4. Invoice on a Monthly Basis. If your cash flow allows for it, invoice your customer every month, rather than every week or every two weeks. Again, monthly invoices look like your customer is dealing with a real business. Weekly or bi-weekly payments spell, "Potential Employee."

5. Provide Your Own Equipment. If you are using your own computer, your own software, your own car, etc., all at your own expense, this is another indicator that you are an actual business. If you do not do these things, this looks like you are not in business - you may be an employee.

6. Have More Than One Customer. If you provide services or products for more than one customer, this looks good in the event of an audit. If this customer is your only customer, this looks bad in an audit.

7. Cover Your Own Expenses. A lot of expense reimbursements is a possible indication that you are not in business for yourself.

The more of these you do, the better chance your customer will not have to pay additional money for work comp or payroll taxes in the event of an audit. Keep your customers protected and implement all of these strategies soon!