New Rules for 1099's

[jainen]

>>reading it makes me want to hit someone<<

Get a grip, friends! This will cause very little inconvenience. The IRS is only asking for reports on information the business already controls and has readily available. The software already exists and will undoubtedly be upgraded and enhanced. Companies with reasonable records will have no trouble complying, and companies that don't have it together will be that much more likely to seek professional help from us.

Of course, it also means a lot of our clients will RECEIVE 1099s. Since this is the real purpose of the new rule, perhaps it's the real objection too.

[NECPA in NEBRASKA]

Jainen,

I don't know what kind of business clients you have, but here in Nebraska, many of my clients don't keep computerized records. I still have several clients that use Dome bookkeeping books. Many of them use even more primitive records. They don't keep their records by vendor. I have around 200 small businesses and only about 20 keep their records on a computer. You are very lucky to have clients that are able to compile all of this new information easily. It is going to be a huge nightmare for my and my clients.

Bonnie

[cred65]

Fear Not; Help is on the way. Hope this makes your weekend.

http://online.wsj.com/article/SB10001424052748703578104575398003212963276.html?mod=WSJ_hps_MIDDLEForthNews

[jainen]

>>my clients don't keep computerized records<<

It sounds to me like you already have a nightmare. You can't expect a lot of sympathy for maintaining hundreds of clients on long-outdated business models. Are you really saying your businesses can't figure out who their best customers are, or how much they pay their suppliers? They still stay up all night casting out nines?

As I said in my first post, this requirement (which no doubt will be eased in over time) will move inefficient businesses to get more professional with their books. Not just internally--they may find customers and suppliers using the 1099's to analyze who is most worth doing business with, and who is just too much trouble.

[Lion EA]

As an example, I have one client who sells a product and travels to a handful of cities. She puts all her travel meals under one vendor "Restaurant" in QuickBooks, since she's never see a business reason to track the individual restaurant amounts (she doesn't sell to restaurants). But, since she travels frequently, she very well might spend $600 or more at one or more restaurants and would need to spend time tracking something that, for her, has no business purpose and provides her with no useful information, just provides information to the IRS. She knows who her best customers are, and she knows how much she spends on travel meals. She has no desire to know how much she spends at each restaurant nor any desire to try to get her waitresses to fill out W-9s!!!

[jainen]

>>has no business purpose and provides her with no useful information<<

The new rules do not require a 1099 for expenses that have no business purpose.

In my opinion, most businesses consider travel costs to be very important, and pay close attention to where the money is being spent and why. I would expect that information to be even more useful since travel is a significant part of her business. In any case, your client already is required under Section 274 to keep ITEMIZED records of her business meals, and that is so clear and important that it's a standard provision in tax engagement letters. In my opinion, you should not sign her tax return knowing what you know.

I really don't see how your example supports the objection. Apparently this client is one who needs to upgrade her record-keeping just to comply with current law.

[Lion EA]

She has all her receipts, but I'm not her bookkeeper. The P&L she gives me breaks down her travel expenses into lodging and meals and a rare airfare (and she has a mileage log). She has been tracking her meal expenses year over year and as a percentage of sales and in a couple of other ways. But, she has not been adding up the receipts from Mama's Diner in Boise vs. Athena Diner in South Bend vs. you get the idea. She's been typing her meal receipts into QB, but the detail shows simply Restaurant.

Her business expenses have a business purpose; but until this new rule kicks in, TRACKING her spending in individual restaurants while on the road has not been of interest to her, cannot provide HER (as opposed to the IRS) with any information that she can conceive using to help her make better business decisions. What will having 119 subcategories under Restaurant do to make her a better business woman?

She knows how much she spends at each fabric wholesaler to buy the materials she uses to make the products she makes and sells. She can quickly compare how much she spent at ABC for cotton/polyester vs. how much at XYZ. But, if there's only one restaurant in Podunk, and she spent $29.99 there in 2010 and $62 during 2009, will she have learned enough helpful information that you or I or the IRS can convince her to set up and use all 119 subcategories of restaurants?!

[jainen]

>>set up and use all 119 subcategories<<

She does not need separate categories. She can name or code the restaurants when she enters them in the single category. I'm not saying she won't have some new steps, but these are just new ways of arranging the data she already has. That is, you know, the great advantage of data management software. Otherwise why not just stay with the Dome ledgers and a cheap calculator? She may not have used this data before, but she does already collect it and retain the source documents.

Another very common way of handling this kind of expense is to always use a single credit card, the business class kind that offers printouts and other data management.

[Catherine]

>>set up and use all 119 subcategories<<

She does not need separate categories. She can name or code the restaurants when she enters them in the single category. I'm not saying she won't have some new steps, but these are just new ways of arranging the data she already has. That is, you know, the great advantage of data management software. Otherwise why not just stay with the Dome ledgers and a cheap calculator? She may not have used this data before, but she does already collect it and retain the source documents.

Another very common way of handling this kind of expense is to always use a single credit card, the business class kind that offers printouts and other data management.

It's not CATEGORIES, jainen, and you should know that if you have ever used QuickBooks. It is VENDORS. And, as long as Lion's client keeps her meal receipts, Lion is NOT required to ask for those receipts or see those receipts. We are NOT auditors for the IRS -- and when they require that, I predict wholesale exodus of many, many return preparers (EAs, CPAs, and the new registration categories as well).

There is NO business purpose for this client of Lion's to track her meal vendors. The information ONLY serves the IRS.

We get that you like to take outrageous positions to make a point sometimes. But please keep them outside the realms of the fruitless and pointless. This was both.

[jainen]

>>the fruitless and pointless<<

Well, if it is required by the IRS, even wrongfully, that would be a point. You may have noticed that the entire accounting field has been changing in big and little ways. Part of that is the public revulsion to the Enron and similar accounting scandals, which are generally viewed to have been nothing unusual except in size. The government is not the only one clamoring for better documentation. Their constituents hit them at every town meeting. That's our clients. Ordinary people want to be able to file nice clean tax returns that don't call down a lot of scrutiny.

What are you saying? Can you imagine bankers whining, "We have to track the interest we pay on every single little account!" Well, the reason it started with banks and brokers and pensions is that they got computers first. Now, digital power is available to everyone, and it is perfectly reasonable for the IRS to expect anyone with a true business motive to be taking competitive advantage of technology.

Odd sort of operation that has no business purpose in tracking who the major vendors are. I would guess she DOES think about which restaurants she prefers for price and quality, so a bit more formal analysis is not even a new function. I repeat, this is data that has ALREADY been collected. It just isn't that big a deal to code information you are entering anyway. Oh, and category was Lion's word, not mine.

[Lion EA]

I have another client that started taking power bars on her trips and no longer eats at restaurants when traveling for business. I could recommend that method to my other client. She'd be more likely to do that than to type in every restaurant she eats at on the road when she can just point and click on the word Restaurant now and be back to sewing her product.

By the way, her criteria is speed, something I don't know how to tell her to track in QB. She wants to spend as little time as possible not selling when she's driving from town to town. And, comparing speedy service or lack of at McDonald's in Hoboken to the Greek Diner in Scarsdale does her no good when she's on her way to a potential client in Springfield.

Which makes me ask, will she need a W-9 from EVERY McDonald's or one for each common owner (how will she know until she receives the W-9?) or one for the whole world of McDonald's? (There are six different Staples that I shop at in CT, as well as ordering office supplies on line that get delivered from Staples in NY. Are they all under one parent company/EIN or not?!)

When it's law, I'll do my due diligence to make sure my clients are following the law if they want me to prepare their returns. I already ask about (and sometimes insist upon seeing, if I have doubts) 1099s to independent contractors and educate my clients re employee vs. IC. But, this is still the discussion period for this new but future requirement, so I hope we're all providing input to the IRS &/or to our professional groups who are providing input and to business groups who are providing input and even to our congress people, since there's a new bill proposed to change the current law before it takes effect.

I am a real QB neophyte, so apologize for using subcategories instead of vendors. As I said, she gives me her P&L which has business meals (probably M&E in that terminology) and her bankers box of folders for the year with receipts filed, her mileage log, new equipment flagged, etc., so I can look for any detail I need.

[grandmabee]

I have another client that started taking power bars on her trips and no longer eats at restaurants when traveling for business. I could recommend that method to my other client. She'd be more likely to do that than to type in every restaurant she eats at on the road when she can just point and click on the word Restaurant now and be back to sewing her product.

By the way, her criteria is speed, something I don't know how to tell her to track in QB. She wants to spend as little time as possible not selling when she's driving from town to town. And, comparing speedy service or lack of at McDonald's in Hoboken to the Greek Diner in Scarsdale does her no good when she's on her way to a potential client in Springfield.

Which makes me ask, will she need a W-9 from EVERY McDonald's or one for each common owner (how will she know until she receives the W-9?) or one for the whole world of McDonald's? (There are six different Staples that I shop at in CT, as well as ordering office supplies on line that get delivered from Staples in NY. Are they all under one parent company/EIN or not?!)

When it's law, I'll do my due diligence to make sure my clients are following the law if they want me to prepare their returns. I already ask about (and sometimes insist upon seeing, if I have doubts) 1099s to independent contractors and educate my clients re employee vs. IC. But, this is still the discussion period for this new but future requirement, so I hope we're all providing input to the IRS &/or to our professional groups who are providing input and to business groups who are providing input and even to our congress people, since there's a new bill proposed to change the current law before it takes effect.

I am a real QB neophyte, so apologize for using subcategories instead of vendors. As I said, she gives me her P&L which has business meals (probably M&E in that terminology) and her bankers box of folders for the year with receipts filed, her mileage log, new equipment flagged, etc., so I can look for any detail I need.

Have her charge her meals then she won't have to worry about sending out 1099....I don't know if Mcdonalds take credit cards

[Lion EA]

I have been telling EVERYONE to charge EVERYTHING and doing so myself also to get in the routine!

[joanmcq]

I already charge darn near all my business stuff just because I know what a pain it is to get 'proof of payment' if you are audited. Keeping it all on a biz credit card is simple and easy. And makes it easy to do my bookkeeping; I staple all the individual reciepts behind every monthly statement. Do this for gas purchases too. The only time I pay cash for biz stuff is if I'm running into Office Depot for something that is under $5 and I just happen to have cash. The same goes for my rentals; charge card or debit card.

I suggest methods like this for my clients too.

[Pacun]

This will be a mess.

I guess MicroSoft will get a 1099 from Visa/master card stating "from 2,000,000 clients, we paid you $10,915,153,234.54". How will that figure help the IRS any better?

Of course this is already done somehow by this company so this will not represent a big change for either company. The postal office should be happy with this decision because they will get more mailings every Jan/Feb.

Or you think the IRS wants to match records and verify if I really paid MicroSoft $199 for upgrading to Windows 7 and purchased Office 2010 for $499.99? If that's the case, Visa/Master card will have to send a 1099 for $699 and my name will appear somewhere in the 1099.

I will love to see the 1099 or 1099s that Visa/Master card will send to DELL computers.

[joanmcq]

What it does is keep people from being able to deduct cash transactions, unless reported, and not as easily hide cash income. This stuff isn't for Microsoft & Dell; its to try to slow the cash economy. Hey, you can still pay cash for stuff...but either you don't deduct it or you issue a 1099.

Yeah, its Big Brother watching over us. But since I pay all my taxes, and see the percentage of people who don't, my feelings are mixed. Like the new preparer requirements. I'd like to see the unlicensed with whom I compete have to at least get some kind of education and be required to exhibit some kind of competency before they get to hang up their shingle. Do I like more fees and paperwork for me? No.

Is there still going to be a cash & underground economy? Sure there will. But it'll be harder to hide, and all those folks that believe you don't have to pay taxes on money you don't get a 1099 for will pay a bit more of their share of the deficit.

[Lion EA]

The ones that I won't prepare are the ones who allude to income but claim they don't have a business or refuse to give me information. Out my door. But, they're not reporting their income, not even reporting that they have a business. Since they aren't deducting expenses anyway, they have no incentive to prepare 1099s. They won't be filing any more 1099s than before, since they don't file any.

[joanmcq]

I'm not thinking of the returns I prepare, but the ones out there that will suddenly be getting more 1099s, and have to report the income since it is documented. I see a lot of self-prepared returns because of doing audits. I will have a lot more education to do for my small biz clients.