Archive for July, 2010

1099 Madness

Tuesday, July 27th, 2010

Reading about the insane requirement of 1099s for purchases lately, I keep having a thought about matching that I have seen nobody else mention: Cash versus accrual accounting.

My former business was a simple partnership. We had a tax ID number as the business, and operated in some ways the same as a corporation might. However, our large client sent us a 1099 each year as if we were an individual contractor. Apparently this was required, since we were not, in fact, a corporation.

We used accrual accounting.

Which in retrospect I consider a mistake, but I took my accounting degree and made things theoretically pure. Kind of a geeky, OCD thing, when it comes down to it.

There was never a year when the 1099 from the client matched our declared revenue from them, entirely aside from the presence of other sources of revenue that made the grand total differ and were not reflected by any pesky paperwork to the IRS.

Now imagine that as applied to products.

Is it reportable on a 1099 when you make the purchase on terms and it’s on the books as a purchase, or is it reportable when cash changes hands? Are prompt payment discounts included or excluded? How is any of this information useful when the year it falls inti for the seller doesn’t align with the year it falls into for the buyer?

We’ve already seen that at least some in Congress understand nothing of accounting, even rules they themselves have applied. Do they have the slightest idea what they’ve done in that regard?

It’s crazy.