Penalties increase. In fact, they have done so twice already in the last year for 1099-MISC and other 10-series reporting.
Deadlines change. This is a common occurrence and not always helpful, even when deadlines are extended.
Rules and forms are amended. Even changing one box on a form can trigger you to change your process to collect information, source file mappings and other internal resources must be expended to account for these new variations.
Tax Reporting is Increasingly More Complex
All of this is nothing new for those living in the chaotic world of tax information reporting. However, so often there is disconnect between decision makers and those in the trenches, and the result is a severe misunderstanding about how and what should be done to manage this complexity efficiently.
Take for instance, the new changes coming from the Section 201 of the PATH Act (Protecting Against Tax Hikes bill passed in January of 2015), which has oddly not been reported about too much. This legislation changes the deadlines substantially for organizations, because the print AND transmittal deadlines for Forms W-2, W-3 and 1099-Misc will now be the same. You will now be required to file and transmit on or before January 31st.
What Do the PATH Act Implications Mean for Your Organization?
First of all, the provision is effective for forms filed in 2017 for 2016 transactions. That’s next year! Also, electronically filed returns will no longer be eligible for an extended filing date, giving you less time to adjust and comply, unless you check box 7 and then the extension begins after January 31st.
Moreover, this means after you mail your forms to recipients, you will no longer have one last chance to validate or correct data before you make the transmittal to the IRS. This means less time to comply and more opportunity for errors, which could mean more penalties at the recently increased rates. Ouch!
Shaping Your Tax Information Reporting Process to Handle Change in the Future
Handling this whole tax information reporting process seemed an easy undertaking only a couple years ago, but now it’s a completely different ballgame. A lot of the misunderstandings come from underestimating how many changes are constantly being made: from new boxes, to new forms, to new state codes, to deadlines, and on and on…
To those in the trenches it’s clear that maintaining a truly compliant system is far more expensive than just the initial build. A modern solution MUST be dynamic and alterable at the drop of a hat to comply with ever-changing IRS regulations because even when the IRS changes one box on a form this can often trigger all kinds of adjustments that must be made to your core systems to make sure information is gathered, recorded and transmitted properly on time. Having your IT team and other departments make these changes costs valuable time and resources that keeps your organization and these teams from other core business activities that increase profitability.
Instead, companies continue to put themselves at risk to incur mind-boggling penalties and are spending inordinate amounts of paid man-hours by attempting to stay compliant in-house.
It doesn’t have to be that way. There is a way to achieve compliance where you can stay on top of the regulatory updates, form changes, etc. and scale as your business increases to handle more forms AND these changes. At Sovos, we know how to handle the volume and complexity so you can achieve compliance and focus resources you were spending on managing these mandatory reporting requirements on more important, profit-driving initiatives. Contact us today to learn more.
**** Special thanks to Nicholas Stevenson for his insight into this issue. To speak with him about your tax reporting needs or for clarification on these impending changes, feel free to contact him. ****