Solving NetSuite’s Inherent 1099 Cash Basis Reporting Challenge

This article is relevant if you need an accurate cash-basis 1099 reporting solution in NetSuite and you understand the challenges with outdated saved search techniques, incomplete vendor data, or insufficient reporting capabilities.

Background

Since 2015, I have concentrated on addressing the challenges of NetSuite’s 1099 reporting functionality.  Initially, NetSuite provided a built-in 1099 reporting solution, which was later discontinued in favor of external third-party tools. Over time, I observed a pattern in the third-party ecosystem where saved searches were leveraged to funnel data into proprietary tools for 1099 generation and distribution. Unfortunately, this approach proved inadequate due to incorrect assumptions about vendor payments and the limitations of saved searches.

The core issue stems from the constraints of NetSuite’s saved search functionality, which lacks the depth and data accessibility necessary to accurately source critical elements for a robust 1099 report. It’s important to recognize that 1099 reporting is based on cash transactions, not accruals. This requires a detailed analysis of vendor cash flows to identify and report the appropriate elements of these transactions. Saved searches simply cannot achieve this level of precision. Refer to my diagram for an illustration of the transaction relationships.

Outlining NetSuite’s Fundamental 1099 Reporting Challenge

Many NetSuite organizations may not fully grasp their challenges with 1099 reporting. While third-party vendors provide installable Saved Searches to extract data for their 1099 form generation and distribution tools, these summaries are often inaccurate.  Such inaccuracies can create significant issues for recipients, especially under IRS audit scrutiny.

NetSuite’s decision to phase out native 1099 reporting in the mid-2010s exposed a key issue: aligning NetSuite’s accrual-based architecture with the IRS’s cash-basis requirements for 1099 reporting.  NetSuite has broader challenges with cash-basis reporting, which I discuss in detail in my article, Closer Inspection: NetSuite Cash Basis Reporting Challenges.  Below are the core challenges in this 1099 reporting topic:

1. Accrual vs. Cash Basis Reporting: existing solutions incorrectly start with accrual transactions.
   • Accruals: vendor bills are created on an accrual basis but may be paid across fiscal years, complicating cash-basis reporting.
   • Prepaids: vendor bills often reference prepaid (balance sheet) accounts, which obscure the correct 1099 expense category.
   • Line Application: payments spanning multiple lines make accurate allocations even more difficult.
   • Foreign Currency: while this is a USA-based report, any foreign currency payments will make the situation more complex.
2. Limitations of Saved Searches: the tool simply does not have the reach for this report requirement.
   • Technical Constraints: NetSuite’s saved search technology struggles with complex multi-join requirements, making it difficult to precisely link vendor bills, payments, and 1099 categories.  Note, our firm has broken through all the native limitations.
   • Inaccuracies in Data: over-reliance on simple criteria like “paid in full” introduces errors, such as the following two items:
   • Understatements: failing to include prior-year vendor bills paid in the current year.
   • Overstatements: incorrectly including transactions involving vendor credits.
   • Account Misclassification: general ledger accounts may not be properly tagged for 1099 reporting.
3. Incomplete Vendor Data: saved searches and data management practices often fail to identify or resolve issues like missing tax IDs, incorrect addresses, or incomplete 1099 eligibility settings.

A Decade of an Evolution of Solutions

Our early efforts to address these challenges relied on consolidating multiple saved searches externally and generating cash-basis records. Each of these steps demanded significant manual intervention to create a reliable solution.  By 2019, we explored using SuiteAnalytics Workbooks to tackle the 1099 challenge. While this tool introduced more flexibility and depth, it alone was insufficient to fully resolve the abovementioned complexities.

Effective 1099 reporting requires a deeper strategy — one that goes beyond saved searches or SuiteAnalytics workbooks and leverages a comprehensive approach to an organization’s existing transaction processing methods to align with cash-basis reporting standards.

Proper Approach to Solve NetSuite’s 1099 Reporting Challenge

To address NetSuite’s 1099 reporting complexities effectively, the solution must follow a structured approach that aligns with cash-basis requirements while ensuring data integrity. Here’s what a robust 1099 solution entails:

1. 1. Gather Cash Payment Transactions: since 1099 reporting is cash basis, the process starts by identifying cash sent to vendors during the reporting year:
      • Capture Relevant Transactions: query vendor bill payments, vendor prepayments, and checks to collect all cash transactions within the target year.
      • Link Payments to Vendor Bill Lines: allocate payment amounts proportionally to individual vendor bill lines based on how payments were distributed.
      • Address Bookkeeping Edge Cases: review your organization’s accounting practices to account for exceptions, such as payments that don’t fit standard patterns.
   2. Include Comprehensive Vendor Information: accurate reporting depends on the quality of vendor data, which may require significant cleanup and validation:
      • Ensure Data Integrity: confirm vendor records include all required information, such as names, addresses, and tax IDs.
      • Validate Vendor Records: use lookups and data validation techniques to ensure the reliability of vendor data and resolve gaps or inconsistencies.
   3. Summarize and Refine Information: Once detailed transaction data is gathered, it must be summarized and refined for reporting:
      • Summarize Transactional Details: aggregate cash-basis transactions to prepare summarized reporting data.
      • Apply Reporting Exclusions: refine summaries to exclude non-reportable amounts, such as payments under the $600 threshold.
      • Prepare for 1099 IRS-specific Reporting Tools: structure the summarized data for easy integration with 1099 form generation and distribution tools.
      • Build for Future Use: Design the solution within a framework to simplify reporting in subsequent years, reducing manual effort and errors.

By starting with accurate cash transaction data, validating vendor information, and refining reporting summaries, organizations can ensure compliance with IRS 1099 requirements while reducing audit risks for all parties. This process also creates a repeatable framework, streamlining 1099 reporting for future periods.

Click on the image to see it in full screen.

Supplying the SuiteQL for Reliable Cash Basis 1099 Reporting

We solved the challenge for our internal use (yes, we use NetSuite to run our Practice) and clients by leveraging the power of the SuiteQL (SQL) engine. Since the solution demands data quality and readiness considerations, one should not simply think, “Plug it in, and it is done.” Instead, like any quality software-driven outcome, a better approach is to consider the solution approach outlined above and then carefully consider the quality of information and transaction processing paradigm.

Our Prolecto Financial Saved Search Library, freely available to the NetSuite user community, now includes SuiteQL, specifically designed for this 1099 reporting challenge. This inclusion facilitates the generation of a comprehensive 1099 report, with added commentary to shed light on certain subtleties. For instance, the SuiteQL framework doesn’t grant access to the native vendor ‘taxidnum’ or the ‘is1099eligible’ fields directly. Nevertheless, seasoned NetSuite administrators can successfully overcome these minor hurdles.

Alternatively, our expert team can configure the SuiteQL report as a straightforward annual 1099 report, simplifying the reporting process and enhancing compatibility with third-party platforms. We leverage SuiteQL to drive our license- free Query Renderer reporting tool to overcome SuiteAnalytics Workbooks limitations. This advancement ensures that NetSuite users can now access financially accurate 1099 reporting based on cash transactions with minimal setup requirements for annual agency reporting requirements. Click the image to see a sample of the report.

Because our firm is engaged in ongoing optimization and continuous improvement of our clients’ NetSuite-driven ambitions, this 1099 report is one of those “let’s get it right and not think about it in the future” concerns. Ambitious CFOs value our capacity to understand real-world challenges and to translate them into easy-to-use solutions. They need a partner who offers nuanced insights and proactive, trustworthy expertise.

If you found this article relevant, feel free to sign up for notifications to new articles as I post them. If you are ready to tackle your 1099 reporting challenges, let’s have a conversation.

Marty Zigman

Holding all three official certifications, Marty is regarded as the top NetSuite expert and leads a team of senior professionals at Prolecto Resources, Inc. He is a former Deloitte & Touche CPA and has held CTO roles. For over 30 years, Marty has produced leadership in ERP, CRM and eCommerce business systems. Contact Marty to set up a conversation.

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