About every two years, I receive an email from a client’s bookkeeping firm asking for a W9. That’s not unusual, right? But one or two weeks into the new year? That’s problematic.

I have a deep controllership background, and my teams were obsessed with efficiency and timeliness in month-end closings, tax returns, and audit reports. And 1099s? Let me tell you a quick story about how 1099 processing should be done.

Processing More Than 500 1099s

In one of my controllership roles, we processed more than 500 1099s each year. Even though we had a strong HR department that did the majority of the work, I still hated it because it was time-consuming, but we executed some tactics that I’ve had clients repeat, too:

We paid no contractor until they turned in their W9 form. No exceptions.
All W9 forms were immediately entered into our ERP and payroll reporting systems–they were integrated through custom coding, so the data entry was done only once.
HR submitted the 1099s to our contractors the first week of January.
All required paperwork, including Form 1096, was submitted to the IRS by the middle of January.

Please review the steps above one more time. Can that happen in your business? As a financial performance coach and consultant, I do not spend much time on accounting tasks. However, I will speak up when I see glaring, avoidable errors, especially for bookkeepers winging the 1099 process.

Let’s make some tweaks to the list above for smaller businesses.

Form W-9 Is Far To Confusing

A Google search on filling out a W-9 yields more than a million results. Does that mean this is a high-risk form to complete? It’s not, but it can be.

Also, I would love to know the error rate of those turning in a W-9 to an organization. There are only a few lines of information to fill out, yet there are a couple of tripwires that many payees complete improperly. Here are some common errors:

For whatever reason, tax classifications can be an issue for the person filling out the form.
The name sections are botched when the payee operates an LLC (disregarded and those taxed as partnerships).
Especially in the above situation, payees provide their Social Security number and EIN (both). The Social Security boxes should be left empty if an EIN is provided.

I can attest that many small bookkeeping firms ask for these forms via email. That’s a huge no-no. Firms with controllership backgrounds who belong to peer industry groups or are active in their professional software communities (the community behind the Thomson Reuters CS suite of products is hands-down one of the best in the U.S.). When I’m asked for a W-9 in an email, that tells me much about their professionalism.

Since these short forms are subject to error, I’ve had numerous clients issue their replacement forms, which include easy-to-understand language for every line and box that needs to be filled in or checked. Our replacement forms leave no room for reader ambiguity.

When I ran an outsourced controllership firm, we received these forms via a secure private portal (ours was called the Client Portal by Creative Solutions, now owned by Thomson Reuters). In your case, you should use an SSL-encrypted tool to receive these documents.

I learned years ago that this step alone sped up the process significantly.

For PRA™ Clients of G3CFO

If I have PRA™ responsibilities in your firm or if you are a monthly G3VIP, I can walk you through my document mentioned above. However, let’s customize it in your voice, and we need to get your outsourced bookkeeping firm on board with this tool as quickly as possible.

The Small Company 1099 Process

Once we have a good W-9-like document, we can complete the 1099 as follows:

Create a simple matrix revealing who needs to complete our newly created W-9 document. Incidentally, certain payees may live in a 1099 shade of gray. As a strict rule of thumb, over-comply with the IRS (always) by sending the contractor a 1099.
When setting up a new vendor, refer to the matrix above. If the payee is subject to a 1099, immediately issue the form created above.
Only pay these new vendors once the substitute W-9 has been received. This will reduce compliance headaches down the road. Bookkeepers asking for W-9s in January will never happen again.
On or about the third or fourth business day of the new year, review the list of payees subject to 1099 for completeness, accuracy, and propriety. Do not audit the data; give it the sniff test.
Download the list in CSV format so your payroll firm can read it into its system. Have that provided and submit the form to payees by January 15th. Then, have them submit all other necessary paperwork to the IR, including Form 1096.

1099 processing is easy, or it should be. My teams and I have followed the procedures above because we have far more critical work to do. The methods are both foolproof and efficient.

More than fifteen years ago, I got my payroll firms involved in the 1099 process. As a process improvement junkie, I’m constantly looking for ways to both save time and add quality to the same workflow. Fifteen years ago, we were still processing these forms on paper, and it was a timely and burdensome endeavor. When I asked one of my payroll providers if they could submit 1099s, they answered, “Yes, and for a small charge,” similar to W-2 processing fees. If you outsource payroll, outsource the submission of your 1099s, too.