As part of the new Health Care reform bill, the government is requiring businesses to do more record keeping to assist with the monitoring of tax compliance – is your accounting system ready?
A new update for 1099
Starting Jan 1, 2012, the government is requiring businesses to report on and issue 1099s to any vendors to which you made payments totaling $600 or more during the calendar year. Potentially (if there are no reliefs granted to the yet-to-be-published regulation) even including some restaurants where your company has repeatedly visited during the year.
Under the current regulation, 1099s are only required for payments made to non-incorporated individuals, certain specific types of financial transactions (interests, loans, etc.) and/or target transactions (bartering, prizes, etc.)
How to prepare 1099
You probably should look into your accounting department right now and see if your record keeping can support such an increase in paper electronic work. Potentially, thousands of transactions will have to be sorted, reorganized and reported to the IRS – the million dollar question is: Can you tell (accurately and confidently) how much money you’ve paid to each of your vendors during the last 12 months simply by looking at your accounting system?
If your answer is no, you probably should be talking to your controller, CPA and/or software vendor to work on reinventing your accounting processes and systems.
Checklist – What you need to file 1099
If your accounting system can currently support this new regulation, then great. But if it can’t, and you are thinking it won’t take that much more effort and/or time, you couldn’t be more wrong. By fundamentally shifting the end goal we have in mind changes the accounting process significantly.
To try and sort your accounting records out after the fact can be extremely challenging and costly. Now is definitely NOT too early to start thinking about it and here are some aspects to look into:
Can your accounting software support the reporting functionality we need? (Reflect total payments by vendor instead of category)
Are your accounting staffs adequately trained on both the accounting methodology and the accounting software?
Does your record keeping process support the reporting need? (Are you gathering enough right information in an organized fashion?)
What about all the 1099s that your business will receive? Probably should have a good system to match those up to your accounting records.
Well, hopefully, some reliefs will be coming down the pipeline soon; but for now, it is not a bad idea to look into your accounting department and see where improvements can be made.
Happy Monday people – let’s rock and roll this week.