This went into effect last year, but it seems some folks missed that announcement, or thought it was only for last year, or just plain forgot. Because I’m getting a lot of surprised, blank stares when I remind folks that information returns are due by January 31st.
This most often refers to W-2 and 1099-MISC forms, because they report income and withholding to recipients, and the IRS needs this information to be able to accurately process (and computer-check) their individual returns that declare the income and withholding as part of their tax liability computations. The IRS hopes to catch folks in the first month of the filing season who misstate these items, and this way, they can compare the information submitted by payers to the information declared on returns by filers.
The IRS will only grant extensions for very specific reasons — such as: records being lost in a disaster; or, the person responsible for filing the returns has an unavoidable absence; or other inescapable scenario.
The best advice I can give for meeting this challenging deadline is:
- Do not pay anyone for services rendered, rent, royalties, or a settlement without first obtaining a signed W-9 form (or W-4 form in the case of an employee or household employee); this form is where they tell you whether they are incorporated or not (if they are, you do not need to send a 1099), and they give their address and tax ID number.
- Have your books reviewed by a professional accountant or bookkeeper each quarter. My staff accountant looks at our clients’ books for missing payee information, as well as folks that may be contractors for whom we do not have a W-9 already on file from the previous year. She reviews transactions in accounts that often have service providers’ activity tracked in them, such as: Repairs & Maintenance, Professional Services, Leasehold Improvements, Contracted Services, Legal & Accounting, Independent Contractors, Temporary Help, Cleaning, Payouts, Miscellaneous, and so on. That way we can have business owners inquire early-on for W-9 information (if they’ve forgotten to obtain it when payment was rendered).
- Order your 1099 forms early so they get to you on-time, if you’re preparing them yourself. If your accountant is preparing them, inform them asap that you’d like for them to do so, and reconcile your books as quickly as possible after the year-end.