Expert Shares Key Insights into Small-Business Tax Filing

AccountingWEB
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Owners of small businesses want to spend their time perfecting their products and services and working with their clients and customers; dealing with tax paperwork is probably the last thing on their minds. Fortunately, accountants are perfectly positioned to take over this burden on behalf of their small business clients. How can they do it? AccountingWEB sat down with Susan Drenning, president of eFile4Biz.com, which provides 1099 and W-2 e-filing services. She gave us the inside scoop on filing these key documents, and shared her insights on trends in small business outsourcing.

AWEB: What are the key filing issues your customers find difficult to manage? What questions do they have?

Drenning: We've spoken with our customers and other companies as well, and discovered that the biggest pain point is the formatting and printing of the form itself. Even in this paperless world, there's still a lot of onsite printing, and we've found that some companies are still manually typing the W-2 and 1099 forms thinking that’s actually easier. This year, we found out that one of the major software programs doesn't correctly align the W-2 forms. Preparing the printed forms for recipients is simply a bigger pain point than you would imagine and has become a compelling reason for small businesses and accounting firms to outsource the full process.

AWEB: So having all software packages work together harmoniously seems essential. For example, I see your service works with Excel and QuickBooks uploads. Is that going to be necessary going forward—different apps working with each other?

Drenning: Absolutely. Re-entering data is a thing of the past. Everyone is looking for new ways to maintain data in just one system.  For example, with QuickBooks, users would download a plug-in for the ability to import data from QuickBooks files in order to create 1099 and W-2 forms. But QuickBooks Online recently opened up its API  allowing other apps, such as ours, to seamlessly migrate data between the programs.

When it comes down to it, tax software is a very mature product line that is great for simplifying the data calculations and preparing filings. However, for those using software in any platform, the problem with 1099 and W-2 forms still lies in actually printing and mailing the forms and e-filing to the IRS. It's a really tedious process. So the market is moving to a full-service kind of solution, similar to the shift to online payroll processing.

AWEB: Since small business owners want to concentrate on their businesses—not on peripherals like tax and payroll -- will they have to become more sophisticated in outsourcing tasks like this? What do you see as the accountants' role in helping them?

Drenning: Many small business owners expect their accountants to provide them with info they need to be compliant in all areas—not just in accounting, but in tax filing and human resources, for example. They rely on their accountants as their most trusted business advisors.  The real problem for these owners is that they don't know what they don't know: Who qualifies as  an employee receiving a W-2 form and who classifies as a contractor getting a 1099, is just one problem. The accountant is the top person they typically rely on to answer those questions.

AWEB: You noted the difficulties in knowing whether an employee should be paid under W-2 or 1099. Companies can find it difficult to figure out which is required in a given situation. Do you find your customers are confused?

Drenning: Yes, it's a complex issue. Basically, the decision needs to be made before tax season, because the classification determines the taxes you pay throughout the year.  Now, more than ever, the IRS is singling out small businesses that misclassify individuals for tax purposes— n all-too-common and growing problem. In fact, the IRS estimates that as many as 30 percent of all employees are wrongly classified as independent contractors.

AWEB: What other kinds of problems do small businesses face?

Drenning: There are other complexities such as keeping up with even small changes in requirements. The once-a-year nature of 1099 filing essentially means that tax filers go back through the learning curve every year and often repeat the same mistakes.  At the same time, how much time does a small business owner, or even an accounting professional, want to invest in perfecting a process that no matter how painful, isn’t going to impact them again for another full year.  That’s why we’ve made the filing process quick and easy. We keep customers informed every step of the way.

AWEB: Finally, a word about security. Everyone is concerned about that now—keeping electronic data safe.

Drenning: We've been trying to be proactive in alerting the community about security risks. We've seen companies give access to unencrypted data to seasonal temp workers and print forms in their homes or open office areas. And of course there are mistakes from time to time, and when these happen, where are erroneous forms, with sensitive information, being discarded? We suggest making sure data is encrypted throughout the entire process. And our service takes the additional step of having our print/mail and data facilities certified by the AICPA to be SOC2-compliant.

At the end of the day, we know businesses and accountants want to focus on what matters most them: running and growing their businesses. Relying on an online filing service is a smart, time-saving move for literally any business that makes payments to employees or independent contractors.

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