Taxes: Get Ready to Waste Lots of Time

It was ironic that 3 local account­ing firms called me today to pitch their ser­vices, just as I was wrestling with the 1099 forms to file regard­ing pay­ments to inde­pen­dent con­trac­tors. At this time of year, there are mil­lions of small busi­nesses fac­ing sim­i­lar time losses due to tax fil­ings.

Case in Point: 1099 Forms

The effort of fil­ing 1099-MISC forms is just one of the many ways that the fed­eral gov­ern­ment wastes small busi­nesses’ time dur­ing tax sea­son. The 1099 sub­mit­tal process should be easy to mod­ern­ize: the forms aren’t com­pli­cated, and don’t appear to change that often.

Prepar­ing those forms should be quick and easy for busi­ness own­ers or book­keep­ers, espe­cially when using a good account­ing tool, like Quick­Books. If you’ve coded your book­keep­ing entries prop­erly, all the source data is already stored in QB: from the amounts paid to each 1099 con­trac­tor, their name and address; to the EIN unique iden­ti­fier the IRS uses for your busi­ness.

Alas, there is no intel­li­gent link between Quick­Books and the 1099 forms.

Even though the IRS is per­fectly happy to receive 1040 tax returns via an approved eFile resource, they do not allow small firms to file 1099 infor­ma­tion forms elec­tron­i­cally or fill in the Acro­bat forms avail­able on their web site.(There is, how­ever, an enter­prise-scale ser­vice for that.)

Here’s the friendly notice from the IRS, warn­ing busi­nesses not to use the Adobe Acro­bat ver­sion of the 1099 input form:

This form is pro­vided for infor­ma­tional pur­poses only. Copy A appears in red, sim­i­lar to the offi­cial IRS form. Do not file copy A down­loaded from this web­site. The offi­cial printed ver­sion of this IRS form is scannable, but the online ver­sion of it, printed from this web­site, is not. A penalty of $50 per infor­ma­tion return may be imposed for fil­ing forms that can­not be scanned.

You must file using the IRS’ preprinted forms, although there is a time-con­sum­ing method you can use with Quick­Books. The ben­e­fit of this approach is that the data will be faith­ful to what­ever is stored in your account­ing records. No risk of typos cre­ated dur­ing the form entry process.

The IRS appar­ently relies upon an anti­quated method that was state-of-the-art back in the go-go days of type­writ­ers and car­bon paper for dupli­cate copies. They require firms to fill out multi-part 1099-MISC forms using a method that can be scanned eas­ily by the IRS — or risk a $50 fine per return. It’s vital to the IRS that they receive Copy A of your 1099 form printed on their preprinted, red form.

I can’t help but won­der: if the banks can some­how man­age to scan and process checks printed from Quick­Books, why can’t the gov­ern­ment scan a form printed by Quick­Books? It’s not as if this is a design-inten­sive, highly vari­able doc­u­ment!

Today’s Solution for QuickBook Users

Today’s work-around is to print each page of the multi-part 1099 form sep­a­rately – for each 1099 con­trac­tor – as explained here by Intuit, unless you have a con­tin­u­ous printer. Assum­ing you work out the align­ment issues between Quick­Books and your laser printer, this method works just fine, but it requires con­sid­er­able atten­tion to detail and a lot of time. The more 1099 con­trac­tors you have, the more time it takes.

Be care­ful: the paper for all but the first copy of the 1099 form is flimsy. Your laser printer may jam if you try to rely upon auto­matic paper feed­ing, rather than print­ing one page at a time. Man­ual feed­ing, one sheet at a time, was the most reli­able approach for my HP Laser­Jet P2055 printer.

In the­ory I don’t mind noti­fy­ing the gov­ern­ment what I’ve paid to inde­pen­dent con­trac­tors. But in prac­tice I resent how much unpro­duc­tive time must be spent to send this infor­ma­tion to the IRS.

Let’s hope there’s a bet­ter way in 2012, given Obama’s call to stream­line government’s impact on busi­ness.