It can get confusing knowing what documents you need to have on hand when you operate a small business. One of those documents, Internal Revenue Service form W-9 -- Request for Taxpayer Identification Number and Certification -- lists important details needed by you and the Internal Revenue Service for businesses, independent contractors and those you make any kind of payment to, including employees and vendors during the tax year.
The IRS recommends that you request all vendors submit a W-9 when you plan to make payments to them of $600 or more, if they are individuals or independent contractors, an estate or part of a domestic trust, partnership companies, corporations, a limited liability company, associations or organizations created in or under the laws of the U.S. The purpose of the W-9 is to give you the legal name and address of the vendor and the taxpayer's accurate identification number for year-end tax reporting purposes on the Form 1099. The tax information on the document could be in the form of an employer ID, a resident alien taxpayer identification number or even a Social Security number. The document must be dated and signed by the person listed or by a representative of the legal entity if it's a company.
After you send out Form-1099 documents that indicate payments made to vendors and others during the course of the year, based on the W-9 information collected, the IRS will send a notice to you if the information on the 1099 does not agree with its records. You will need to request a second W-9 from those vendors whose information is incorrect. The IRS requires that you keep W-9s on file for everyone to whom you have paid more than $600 in a tax year as part of standard record-keeping practices, generally up to seven years. Make it a practice to request updated W-9s from vendors regularly to ensure accuracy or at least every time the government updates or changes the form.