Best Practices in 1099 Management

Transcription

1 Best Practices in 1099 Management Presented by Tim Teeter, Avalara Avalara

2 About Tim Tim is in charge of product marketing at Avalara. His background in ecommerce, financial analysis and product strategy and development provide him with unique insight into the financial challenges of a growing business. Tim holds an undergraduate degree in Business from the University of Wisconsin-Madison and a graduate degree in Marketing from The University of Minnesota. Avalara

3 Agenda Welcome and Introductions The 1099 Challenge and Best Practice Tips Overview of Avalara 1099 Solution Avalara 1099 Demonstration

4 Housekeeping Today s webinar will last for approx minutes. Your phone lines are muted; to submit questions, type them into the Q&A box. You can toggle between full screen mode and control panel view by using the floating toolbar in upper right hand corner of the screen.

5 Polling Question #1: How does your company currently manage 1099 Compliance? a. We have an automated solution b. Manually c. A combination of A and B d. We don t have a process

6 THE 1099 CHALLENGE AND BEST PRACTICE TIPS

7 Recently, the IRS said: I believe [tax information reporting is] the source of the next generation of innovation.[it s] a potential new structure of tax administration a structure of opportunity and a fundamentally different way to run our tax system. The thing you have to remember about the [tax] gap is it s like a deep shale oil reserve, it s not money sitting there that s easily tapped, in many ways we have tapped the easy money the real answer, the place where we have leverage, is information reporting. -Doug Shulman, IRS Commissioner (4/6/11) 7

8 Information Reporting Landscape The US Congress, Treasury Department and IRS are highly focused on enforcing existing regulations or introducing new ones to close tax gaps and increase tax revenue IRS hiring new staff to increase enforcement and compliance Increases to penalties for non compliance Challenges associated with Information Reporting impacts all payment types (cash, checks, cards, etc.) Increasingly complex and continually changing regulations call for: A robust and flexible reporting tool that minimizes noncompliance risks and financial exposure A payment form that streamlines the information reporting tasks and processes

9 The Rise of 1099 Economy Even though there may not be jobs in the conventional sense, there is still work, that s the whole idea of the 1099 economy. It s just a different way of organizing the economy. Bill Fulton, Urban Analyst EMSI

10 The Rise of 1099 Economy 1099-MISC produced in million 1099-MISC produced in million A 15% increase in form volume year over year (Source: IRS Publication Update) 30 largest metropolitan areas self employed individuals have increased by 10%. Biggest changes have taken place in four metro areas where the number of self-employed 1099 workers expanded over 10% between 2008 and Seattle up 10% San Jose up 11% Houston up 12% Phoenix up 14% (Source: Economic Modeling Specialists International)

11 Accounts Payable/Tax Operations Facing Challenges Business Dynamics Managing FTE and Processing Costs Multiple Business Lines Increasing System Complexity Disparate Data & Processes

12 Polling Question #2 Who must receive a 1099-Misc Form: a. Anyone who has made a payment for goods or services in the course of your trade or business b. All Corporations, including C Corporations and S Corporations. c. The person providing the service. d. None of the above

13 The Answer: Who must receive a 1099-Misc Form: a. Anyone who has made a payment for goods or services in the course of your trade or business b. All Corporations, including C Corporations and S Corporations. c. The person providing the service. d. None of the above

14 Polling Question #3 How does your company stay on top of legislative changes? a. We follow state/federal websites b. We rely on a third party service c. We have an automated system d. Other

15 Challenges of 1099 Compliance 1099s are a statutory requirement Sooner or later you ll be audited. Audits almost always result in back taxes and penalties Manual 1099 management: It s labor-intensive Leads to inaccurate results Expensive 100% non-revenue generating activity It makes sense to automate with a technology solution

16 Polling Question #4 When is back-up withholding required by the IRS a. When there is no W-9 on File or the customer does not provide a TIN b. If the form is not signed/certified C. When the IRS says so or that the TIN is invalid D. All of the above.

17 The Answer When is back-up withholding required by the IRS a. When there is no W-9 on File or the customer does not provide a TIN b. If the form is not signed/certified C. When the IRS says so or that the TIN is invalid D. All of the above

18 Challenges of 1099 Compliance 1099 Compliance is extension of taxing ecosystem It s an involved process W9, B-Notice, TIN Validation, load, print, submit IRS has a big stick 250 forms in aggregate require electronic filing with IRS Multitude of Forms Support for common form types (INT, MISC, DIV, 1042S, OID, CAP, C, B, LTC, R, S, SA, 3921, 3922, PATR). Forms are added over time and this is not a static list. Most every business will need to print, mail and file a 1099

19 Challenges of W9/1099 Compliance FATCA (Foreign Account Tax Compliance Act) beginning to significantly affect W9/W8 compliance. W9 requirements - it all starts with the W9: As long as the supplier is active, you need to store the W9 form. If the supplier is not active, the W9 needs to be kept on file for 3 years after their last return is filed with the IRS.

20 Internal Challenges Decision makers CFO, VP Finance, Director of Finance (risk mitigation) Streamline tax reporting Comply with all regulations, reduce/eliminate penalties Eliminate manual nature of annual process Typical user A/P Clerk (ease of use, automation) Having to purchase, install, integrate or operate software for W9 retention and 1099 reporting every year Growing 1099able reporting responsibilities Potentially dealing with bad vendor data B-notice and W9 remediation Source data systems vary generally ERP and spreadsheets

21 Polling Question #5 Has your company been audited for 1099 compliance? a. Yes b. No c. I Don t Know

22 Best Practices for 1099 Management TIN Compliance Mismatched TINs per IRS - main issue. Three types of TINs SSN, EIN and ITINs TIN need depends on the type or kind of payee your are dealing with Individual Sole proprietor One of the more common errors is when all of the valid information is provided on the 1099, but the wrong TIN is placed on the form. Fraud reduction use of Truncated Tax Identification Numbers (TTINs) ***-**-1234

23 IRS Publication 1281 Backup Withholding for Missing and Incorrect Name / TIN(s)

24 IRS Publication 1281 Backup Withholding for Missing and Incorrect Name / TIN(s)

25 Best Practices for 1099 Management I have a B Notice, now what? CP2100 or CP2100A notification letters Fewer than 250 you will receive a paper copy More than 250 you will be sent media 1. Compare to your records 2. No TIN begin backup withholding on vendor. 3. When in doubt, send solicitation to the vendor (better to be safe than sorry) 4. Begin mailing solicitations15 business days from the day of the notice 5. If payee does not respond within 15 days, begin withholding on any payments

26 Best Practices for 1099 Management Insist on a completed W9 to be completed by EVERY vendor you on board No TIN = reduced payment Up Front TIN Management will pay dividends down the road Leverage IRS TIN Matching program Follow-up immediately with mismatched TINs Dreaded B-Notices Keep up to date on all IRS changes Year round effort to stay on top of 1099/W9 compliance Automate as much as you can of this process

27 Why Automate your 1099 process? Risk Mitigation Streamline tax reporting Comply with all regulations, reduce/eliminate penalties Eliminate manual nature of annual process Ease of Use Avoid having to purchase, install, integrate or operate software for 1099 reporting every year No more dealing with bad data B-notice and W9 remediation Streamlined process

28 CHOOSING AN AUTOMATED SOLUTION

29 What to look for: Volume based service SaaS product delivery all cloud based Real time TIN validation (individual and bulk) Support for all form types (INT, MISC, DIV, plus many others) B-Notice / W9 remediation tools Print and mail forms by IRS mandated dates Electronic transmission to federal authorities Optional combines state and federal (CSF) filing ERP Agnostic

30 Why Cloud-based 1099 Reporting?

31 AVALARA 1099 PRODUCT DEMONSTRATION

32 Online Product Demos

33 Avalara s Compliance Cloud Platform Automated transactional tax compliance across the U.S. and over 100 countries worldwide

34 QUESTIONS?