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Posted by R. C. White on February 8, 2008, 1:04 pm
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Hi, Andrew - and others.
> Let me go one step further. IMNSHO, there is virtually NEVER a reason to
> use Quicken vs. a 1099 !
Having been on the preparing side of a lot of 1099s (NONE in the paste
couple of decades, though), I can assure you that they are just as
vulnerable to error - by humans and computers - as any other forms that have
to be produced.
Today's highly-computerized systems used by almost all banks, public
corporations, mutual funds, employers, royalty payers, etc., have reduced
most reporting errors to near-zero. But we often see Amended 1099s issued
by stockbrokers, even months after a year-end.
The cover letter on the "2007 Consolidated 1099 Statement" that I just
received from a stockbroker is marked "Figures Are Final". A paragraph in
the letter explains:
"Please Note: The information we received from the issuers of your
investments was marked FINAL. However, in the past, some mutual funds,
REITs, UITs and corporations (domestic and foreign) have reclassified the
tax treatment of income after it was reported to us as final. If that
occurs this year, we will send you a revised 1099 tax statement marked
'Figures Are Final'"
As we discussed at length here recently, there are often significant
accounting issues that cannot be resolved by year-end, or even by the time
financial statements and tax reports must be issued several weeks later. It
is not unusual for the accounting treatment of some transactions - even
major ones - to be changed "after further review" (like Instant Replay in
the Super Bowl).
But we can rely on 1099s we receive from public companies almost 100% of the
time, and we probably would never be penalized for that even if those forms
were found to be incorrect. We might have to pay more (or less) tax (and
interest) based on a corrected 1099, but not a penalty, since we relied on
the official form furnished to us.
Small companies and individuals also must issue 1099s, W-2s and other forms
reporting interest, wages, non-employee compensation and other payments
they've made during the year. These forms are issued by company accountants
and bookkeepers, often using manual systems, and are just as subject to
error as they always have been. I know. As I said above, I've been
involved in preparation of a lot of those.
Even when the reporting form is properly prepared, there can be a reason why
the recipient should report a different number. For example, a dividend
check mailed on December 31, 2006, won't likely be received by the
shareholder until 2007. The corporation's 1099 will properly show that
dividend as having been paid in 2006, but the shareholder should include it
in 2007 income, not 2006. Most shareholders will simply use the 1099
numbers for 2006 and 2007, and the IRS is not likely to challenge them. But
the shareholders really should show the proper amounts on their returns.
Probably the best (least likely to trigger an audit) way to do this would be
to report the numbers from the 1099s for each year, then show a subtraction
on the 2006 return and an addition on 2007 for that end-of-year dividend,
with a short explanation.
A tactic used by some closely-held corporations is based on the end-of-year
rules. A corporation's controlling shareholder, maybe the president, might
be entitled to a whopping bonus at Christmas or year-end. The corporation,
following its usual practice, will mail the check to the president, maybe on
December 31. The W-2 will have to report it as salary paid in the earlier
year, but if the president can avoid the "constructive receipt doctrine"
rules ("all you had to do was reach out your hand and take the check") and
show that the check was not available to him until January, then the bonus
can be taxed in the following year. This will at least defer the tax
payment for a year and perhaps get it taxed at a lower rate, too.
Note that in both those year-end situations (dividend and bonus), the
shareholder's and employee's Quicken numbers might disagree with the 1099s.
And BOTH Quicken and the 1099 are correct. They can be reconciled, but they
differ, quite properly, because of timing.
Yes, 1099's are ALMOST always correct. But, as Ronald Reagan said: Trust,
but verify!
RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
rc@grandecom.net
Microsoft Windows MVP
(Currently running Quicken 2008 Deluxe in Vista Ultimate x64 SP1)
> Laura wrote:
>> So this is another reason to use the 1099 instead of the totals from Q.
>
> Let me go one step further. IMNSHO, there is virtually NEVER a reason to
> use Quicken vs. a 1099 !
> The 1099 figures are what the IRS receives; in 99% (and only because I'm
> leaving myself an out) they could give a Rat's a*s what Quicken sez on an
> import!
>
> I always find it amusing to try to understand what people are thinking
> trying to export Quicken data to Turbotax without ensuring what ends up is
> simply what is easily obtainable (and needs to be used) on a 1099. And
> even if Q differs from the 1099, what do you expect to do about it???
>
> (In fact, movement is now afoot to have FIs calculate AND REPORT cost
> basis to the IRS for 1099-B reportable sales. Yet another reason to not
> trust Quicken, although there are more than one way to calculate cost
> basis that is indeed legit and probably doesn't match reported 1099-B cost
> basis figures if this ever comes to pass.)
>
> I'm listening to see if I'm mistaken - all suggestive comments welcomed!
> --
> -------------------------------------------------------------
> Regards -
>
> - Andrew
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Posted by scott s. on February 8, 2008, 3:26 pm
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> Hi, Andrew - and others.
>
>> Let me go one step further. IMNSHO, there is virtually NEVER a
>> reason to use Quicken vs. a 1099 !
>
> Note that in both those year-end situations (dividend and bonus), the
> shareholder's and employee's Quicken numbers might disagree with the
> 1099s. And BOTH Quicken and the 1099 are correct. They can be
> reconciled, but they differ, quite properly, because of timing.
>
> Yes, 1099's are ALMOST always correct. But, as Ronald Reagan said:
> Trust, but verify!
RC, that's exactly the situation I have this year with one payer.
I called them and the response was "we checked with our accounting
department and this is how we do it for everyone". I was concerned
because this income is subject to a state gross receipts tax, and it
was already after the due date for December tax payments. But I still
find the process of reconciling my 1099s against Quicken to be a good
drill. The bigger problem for me doesn't involve Quicken, but
rather accounting for qualified dividends and US Govt obligations
interest/dividends for funds.
scott s.
.
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