Let’s face it: tax time is one of the busiest times of the year for accountants, bookkeepers and other tax professionals. So, anything you can do to save yourself and your clients some time is beneficial. Enter: cloud accounting. What is it, how can it help, and how does cloud accounting save time when filing 1099s?
How does cloud accounting make handling 1099 forms easier?
Whether you have one client or 100 clients, 1099s can take a lot of time, especially if clients have different types of Forms 1099 to file. One way to cut down on the amount of time you spend entering information and filing is to use cloud accounting software. With cloud accounting, you can get:
- Auto-filled forms
- Multiple filings of different types of Form 1099 (e.g., Form 1099-MISC)
- e-Filing services
- Removal of 1099 payments made with credit cards from forms
- Storage for 1099 records
And, many cloud accounting software options let you access your data from anywhere, at any time. Plus, the cloud is one hub that automatically updates across all user profiles.
1. Auto-filled forms
Perhaps the most time-consuming process of filing Forms 1099 is the paperwork involved. First, you (or your clients) have to gather all of the contractors’ information, including:
- Social Security Number (SSN) or Taxpayer Identification Number (TIN)
- Total of all payments, including earnings, interest, dividends, government payments, etc.
After gathering that information, you’re compiling the totals for all payments to all contractors to complete Form 1096. In all, it can be a hassle.
Cloud accounting software makes it easy to create the forms in less time. Why? Because you enter each contractor’s information before paying them and enter their payments as they work. At the end of the year, the software compiles the information into individual forms.
After entering contractors and their payment information as you go, the software adds it together for you. When the time comes to file, simply download, review, verify the information, and voila—you’re ready to file.
2. Multiple filings of different types of Form 1099
Again, there are a few different types of Forms 1099 contractors can receive (e.g., Form 1099-NEC). The software divvies up the different kinds of Forms 1099 you or your clients may have.
For example, one client may have to give some contractors Form 1099-MISC, and the rest receive Form 1099-NEC. Cloud accounting software automatically creates the different types of Forms 1099 for each type of contractor (and the accompanying Forms 1096).
Cloud accounting software may combine all filings into one packet or give you multiple downloads based on 1099 type. The software determines the type of 1099 based on the payment information you provide throughout the year. It may create different types of Forms 1099 for the same contractor, depending on the payment types you select.
Review all Form 1099 downloads carefully before proceeding to the e-Filing step.
3. E-Filing services
E-Filing can be a time-consuming process if you have a lot of clients. You have to know which states require Forms 1099, 1096, both, or neither. And, Form 1099-NEC state filing laws differ from Form 1099-MISC state requirements. After you know what to file with the state, you must manually upload all Forms 1099 and 1096 for each client. Keep in mind you have to file with the IRS, too.
The IRS requires all corporations, partnerships, employers, and estates or trusts to file electronically if they have 250 or more information returns in a given tax year. But, the IRS also encourages those with less than 250 1099 forms to file electronically as well. The catch? You have to have a FIRE System Transmitter Control Code to file electronically.
Cloud accounting software lets you e-File without registering you or your clients for the FIRE System. So, you’ll save time by letting the software e-File for you—especially because the traditional e-Filing systems require you to manually enter the information for every contractor.
4. Removal of 1099 payments made with credit cards
How do your clients pay their 1099 contractors? Cash, check, debit, or credit card? What about mobile wallets like PayPal or with store-valued cards? Your client only needs to report some of these types of payments.
If your client pays a 1099 contractor with one of the following payment types, do not include that payment in Form 1096 or Form 1099:
- Credit cards
- Debit cards
- Store-valued cards
- Mobile wallets
At the end of the year, you’re processing a lot of information, so one 1099 contractor that a client paid with a credit card could easily slip through the cracks. Cloud accounting software automatically filters out 1099 credit card payments from the rest of the 1099 payments. The 1099 reports only include applicable 1099 payments your client needs to distribute to contractors.
Just be sure to notify (or have your clients inform) those contractors who received credit card payments that they may receive a Form 1099-K, Payment Card and Third Party Network Transactions, from the payment processor.
5. Storage for 1099 records
Printing out and filing copies of 1099s can be a thing of the past with cloud accounting software. Typically, you must keep records for a minimum of three years, though some circumstances listed by the IRS may require you to keep records indefinitely.
Recordkeeping laws can result in a lot of filing cabinets over the years. Or, it can mean needing to purchase external hard drives as you save more documents to your computer. Save some space in your office and on your computer by using cloud storage. When you need to access records, you can log into your account and pull them (often from anywhere you are).
And, the storage you receive is generally unlimited, so you can keep every record you need for years to come.