TAX INSIDER

Preparing and Filing Forms 1099 and W-2 in the Cloud Continues to Rise

As companies do more business digitally and the new due dates for filing common employment forms approach, it’s time to consider making the change.
By Rick Roddis

When it comes to handling clients' Forms 1099 and W-2, Wage and Tax Statement, the path to modernization is a cloud-based preparation and e-filing system. Working this way, rather than completing clients' information returns by hand with paper forms or via software, reduces the burden and streamlines the overall process.

Cloud processing through an e-file platform allows practitioners to go online to enter or upload clients' employee data and complete their filings—anytime, anywhere. With protected internet access, practitioners can prepare Forms 1099 and W-2 and submit them to the IRS or Social Security Administration (SSA) right on their web browser. Plus, with the right e-filing provider, practitioners don't have to print forms, stuff envelopes, and visit the post office to distribute recipient copies by the end-of-January deadline. A reputable provider will print and mail forms from a secure, certified facility directly to employees and independent contractors.

To be clear: Today's full-service, cloud-based filing is different from software installed on one computer with limited access and that provides only a handful of electronic filings. Now, practitioners can conduct unlimited filing and distribution, and access all data, just by logging into and navigating a secure, specialized website—again, from any computer, laptop, or tablet.

Gain an edge with outsourcing

Especially in the past five years, the demand for paper tax forms has declined, while cloud-based preparation and electronic filing continues to grow. Businesses are looking for a smarter and faster alternative to doing it on their own—and outsourcing is the way to go.

With all the responsibilities businesses must juggle in today's fast-paced and competitive environment, it's no wonder outsourcing is on the rise. According to Entrepreneur:

Entrepreneurs have long seen outsourcing as a strategy reserved for big business, but technology has made it a more accessible tool for small businesses—and for some small firms, outsourcing has made a powerful impact on their growth, productivity and bottom lines.

With the 2017 tax season right around the corner, turning to new technology to manage Form 1099 and W-2 filings may offer the much-needed assistance that small accounting or tax preparation businesses need.

A wide range of advantages

Depending on the size of your business clients and the number of Form 1099 and W-2 filings, you may select an e-file solution to manage their filings for them, or direct them to a reputable provider to complete them on their own.

Either way, cloud processing is gaining traction because it is:

  • Convenient: Instead of navigating software or handling mountains of paperwork, online filers follow a few easy prompts from their computer. There's no need for more trips to the office supply store and post office—or struggling with paper jams and misaligned forms in printers. E-filing is more environmentally friendly, too, thanks to less paper and toner cartridge use.  
  • Affordable: The online filer pays only for the number of forms filed, even if it's only one. In most cases, online tax reporting is much more affordable than purchasing software and bundles of forms.  
  • Accurate: In addition to the numerous prompts that ensure compliance with the latest tax rules, e-file sites do the complicated calculations. Data entry errors are caught, and mistakes are prevented. In fact, the IRS considers e-file returns to be virtually error-proof.  
  • Helpful: Online filers appreciate the regular communication during the e-file process, including email notifications when the IRS and/or SSA receives filings. Plus, the business can check the status of a specific filing any time, from any computer, laptop, or tablet.

Beyond that, the right e-file provider will offer specific advantages to tax preparers. For example, tax preparers could:

  • Set up multiple payers.
  • File on behalf of many clients from a single account.
  • Tap into volume discounts by filing for all of their clients at once.
  • Streamline billing by "batching" forms into a separate order for each client.
  • View or print PDFs of forms for multiple years, due to data storage on secure servers.
  • Validate the entered data.

Setting practitioners at ease about security

Of course, security is of critical importance when filing taxes in the cloud—particularly for new users making the switch.

There are several factors to consider when choosing a cloud-based, e-file provider. First and foremost, verify that it's an IRS-authorized e-file provider (look for a special "authorized provider" logo on the website). Be aware that to obtain this stamp of approval from the IRS, the provider must go through a rigorous three-step process. Upon approval, the business gets an acceptance letter from the IRS with its Electronic Filing Identification Number (EFIN). Once it is enrolled, the business can offer e-filing.

Next, consider how the provider transmits sensitive data. Due to the ever-present threat of data breaches and other security threats, an e-file provider needs to offer the strongest, most sophisticated data encryption possible. Only with end-to-end data encryption recommended by the federal government can a provider effectively block the interception or interruption of information by a third party. Data should be encrypted as soon as it's entered on the site—and stay encrypted throughout the process.

It pays for practitioners to do their homework. They should spend time researching and asking questions upfront, until they are confident they are choosing a reliable, experienced, and secure e-filing solution.

A shorter timeline this year

As many practitioners are aware, the IRS has tightened the deadline for filing Forms 1099-MISC and W-2 this tax season. They must now be filed by Jan. 31, 2017—the same deadline for mailing them to recipients. Previously, businesses had until Feb. 28 to paper file and March 31 to e-file.

As accountants or tax preparers, this new time frame may be top of mind. But is it for clients? Again, I can speak firsthand about this. ComplyRight Inc. asked 522 small business owners in late October about the filing deadlines. Nearly 39% thought the deadlines for filing Forms 1099 and W-2 with the IRS and SSA was after the new Jan. 31 deadline.

This provides a unique opportunity with tax clients. Reach out to them now to remind them of the urgency—and to assist them with their filings well in advance of the cutoff dates. Many businesses will be stressed about this tightened timeline for information reporting, which comes on top of the mandatory Patient Protection and Affordable Care Act (PPACA) reporting of employee health insurance coverage. Offer them the tax-filing relief they need, and create new billable services for your business.

What's it like to switch from paper to electronic? It's easier than practitioners might imagine. For first-year users, expect to:

  1. Create an account (some providers allow users to try it out for free until they are ready to file and check out).
  2. Set up payer records: If this is for more than one company or client, create additional payers under one account.
  3. Set up recipient records: Enter the name, address, and Social Security number or taxpayer identification number for each recipient (contractor, employee, or other payee).
  4. Fill out the on-screen forms: Just select the payer and recipient from a drop-down list and fill in the required boxes with the payment amounts, same as with the paper forms from the IRS.
  5. Review and submit the completed forms: Practitioners control which forms to submit, and the timing. Add all these forms to checkout at once, or submit them in batches (by company, client, or form type, for example).

Keep in mind that most e-file providers offer upload options for filing for multiple clients, including downloading an Excel template or installing a QuickBooks plug-in. Also, return users can usually pull up and modify previous data for the new filing season.

Put it all together and you're looking at a much smarter, more efficient way to prepare and file clients' Forms 1099 and W-2. Ditch the paper and set your sights on the cloud—it's a faster track to tax filing.

Rick Roddis is president of ComplyRight Distribution Services, a division of ComplyRight Inc., a provider of cutting-edge compliance products and programs for businesses.

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