Getting Ready for 2013 IRS 1099 Requirements

Why am I writing about 1099s in 2013 when you’ve probably not issued your 1099s in 2011 yet? For good reason. The rules you have to follow to decide who gets a 1099 and who doesn’t change for payments made after 12/31/2011. If you made a payment to a corporation in 2010, you didn’t send the corporation a 1099. If you make the same payment in 2012, you will have to send a 1099 (unless the law changes). This probably seems like a long time, but read on before you decide.
The issue here is that a 1099 is based on when PAYMENT is made, not the INVOICE date. To complicate matters, most software requires that you code the INVOICE when you post it in order to generate 1099 data when you pay it. So here’s the rub…you need to have your software set up to track payments for vendors before you POST the first invoice you will pay in 2012.
Suppose, for example, that you’re a construction company. You receive an invoice from Electrical Company, Inc. on 9/30/11 (or 1/1/1965 for that matter), that you pay 90% of and retain 10% until the job is inspected. The job passes inspection on 12/30/11, and you pay the invoice 1/1/12. This amount MUST BE RECORDED for 1099 purposes. This means that your software needed to be set up to code this as a 1099 reporting amount on 9/30/11.
Our suggestions:

  • start sending W-9s (to request taxpayer IDs) to ALL of your vendors NOW. Send them a letter telling them that you are gathering the information required by the new law.

  • Keep up with who owes you a W-9 and keep asking until you get most of the W-9s you will need. This isn’t important enough now to bug key vendors, but vendors will get swamped with these requests at year end and they should appreciate the fact that you’re planning ahead

  • Figure out what you will need to do to code the 1099 information in your computer software, and how to distinguish the vendors that are corporations in case the law changes. If it isn’t easy in your software to tell which vendors are corporations, hold off setting up the 1099 information for vendors until about 7/1/11. By then–hopefully–Congress will have finished arguing over the health act and the IRS will tell us what the rules are going to be

  • Do this and you’ll be ahead of the game!