If Itís Fall It Must Be 1099 Time
Best practice tips revealed.
October 4, 2007
by Mary Schaeffer
No one in their right mind likes to have the IRS’s attention focused on them. That’s why it’s mind-boggling that so many organizations take such a lackadaisical approach to the monitoring of the information necessary to produce their 1099s every January.
Many experts believe the budget deficit could be closed if everyone paid the taxes they owe. These same experts insist it is the unreported income on the part of individuals that make up most of the shortfall. In reality, the culprit in the case of the underreporting are those organizations who fail to issue all the 1099s they are legally responsible for. The non-reporting issue has been getting greater attention in recent years,therefore, it is imperative that every organization develop strong procedures to ensure they provide accurate 1099 reporting to both the recipient of the income and to the IRS.
Why Is This So Important?
Aside from the obvious unwanted attention of IRS auditors, there are financial ramifications for organizations that ignore their Information Reporting obligations or that perform them poorly. For starters, there are penalties which are 50 dollars per return. In case you’re thinking that’s not bad, let me point out that what the IRS means by return is each 1099 that was filed incorrectly — not just your organization’s entire return.
And that’s just the start. Under certain circumstances, if your organization fails to provide correct information, you will be required to withhold 28 percent from the payment and remit it to the IRS. In cases where non-resident aliens are concerned, it gets more complicated. This is something you want to avoid at all cost; it’s just plain messy and will aggravate your vendors. What’s worse, the IRS can hold you liable for the tax it did not collect.
While not fun, issuing 1099s correctly is not difficult if the process is done right throughout the year. The following practices will help you avoid a 1099 mess:
This short article cannot do justice to the topic of Information Reporting and 1099s. What it can do is make you more aware of the importance of handling 1099s correctly and the risk of failing to do so. It doesn’t take a rocket scientist to get it right; just someone who pays close attention to the details all year long and keeps in the loop on the updates.
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Mary S. Schaeffer is the author of a dozen business books including Controller and CFO’s Guide to Accounts Payable. She serves as the editorial director of Accounts Payable Now & Tomorrow, where she also plans Webinars and one-day seminars. She leads the organization’s accounts payable consulting endeavors, including services focusing on duplicate payments and master vendor files.