Staying tax compliant with software like Bill.com can seem daunting for many users.
However, by understanding key obligations and best practices, you can effectively manage tax compliance in Bill.com without too much extra effort.
In this post, we'll provide an overview of critical tax compliance requirements, share Bill.com accounts payable recommendations, walk through a tutorial on configuring tax details, and explain how to leverage reporting tools to support filings.
Introduction to Tax Compliance in Bill.com
Bill.com is a cloud-based software platform that helps businesses manage their financial workflows. This article provides an overview of tax compliance requirements and best practices when using Bill.com for accounts payable, accounts receivable, and other financial processes.
What is Bill.com?
Bill.com is a financial operations platform used by over 100,000 businesses to simplify their back-office financial operations. Key features include:
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Automated accounts payable workflow to process, approve, and pay bills
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Accounts receivable tools to create professional invoices, track payments, and sync data with accounting software
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Expense reporting, bank payments, and payroll integrations
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Customizable workflows and robust reporting capabilities
By centralizing financial data and documents, Bill.com helps businesses increase efficiency, visibility, and control over their financial processes.
Understanding Tax Compliance Obligations
All businesses have tax obligations they must fulfill to remain compliant, including:
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Tracking taxable income and deductible business expenses
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Maintaining invoices, receipts, and other documentation
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Properly categorizing expenses
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Filing and paying taxes on time
When using Bill.com, it's important to configure the platform correctly to support tax compliance needs. Key requirements include:
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Recording vendor details like tax ID numbers for 1099 reporting
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Assigning appropriate expense categories and classes
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Enabling settings for tax-related workflows
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Integrating data with accounting system
Having the right settings and integrations ensures financial data flows properly for tax preparation and filings.
Overview of Managing Tax Compliance Within Bill.com
To facilitate tax compliance, businesses can leverage several Bill.com capabilities:
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Expense tracking: All bills and expenses entered into Bill.com are tracked by vendor, amount, date, and customizable categories. This provides transparency into deductible business expenses.
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Document storage: Invoices, receipts, and other supporting documents can be uploaded and stored within Bill.com, helping maintain necessary documentation.
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Reporting: Robust reporting features let users filter transaction data by tax-relevant fields like expense type, vendor tax ID, and more to simplify data analysis for taxes.
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Accounting integrations: Two-way sync with accounting software shares Bill.com expense data, enabling seamless tax preparation using up-to-date financial records.
With the right configuration tailored to their compliance needs, businesses can effectively manage tax obligations within their Bill.com financial workflows.
Does Bill com report to the IRS?
Bill.com is required to file Form 1099-K with the IRS to report payment transactions made through their platform. This means that if you receive payments through Bill.com, you do not need to submit a separate Form 1099-K with your tax return.
However, you are still required to report all taxable income you received during the year, whether or not you received a 1099 form. The 1099-K from Bill.com is informational for you and the IRS, but does not remove your obligation to properly report income.
When filing your taxes, be sure to include all income sources - this includes payments received through Bill.com as reported on the 1099-K they provide. Double check that the amounts on your 1099-K match the deposits you received from Bill.com.
While Bill.com submits the 1099-K to the IRS on your behalf, you remain responsible for reporting all taxable income on your return. Failing to report 1099-K income could lead to penalties or additional taxes owed if discovered in an audit.
So in summary:
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Bill.com files Form 1099-K with IRS for payments you receive through their system
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You do not need to submit a separate 1099-K to the IRS
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You must still report all taxable income, including amounts on 1099-K, on your tax return
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Double check Bill.com 1099-K amounts match your received payments
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Not reporting 1099-K income could lead to penalties if caught in an audit
Be sure to report all taxable income sources properly, including any Bill.com payments, by the tax deadline each year. Reach out to a tax professional if you need help understanding reporting requirements.
What is RTP from Bill Com?
Real-Time Payments (RTP) is a service offered by Bill.com that enables businesses to receive payments faster. With RTP, money is transferred between bank accounts within seconds, 24/7. This is much faster than traditional ACH transfers which can take days and have limited operating hours.
Some key things to know about RTP with Bill.com:
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Fast Access to Funds: With RTP, businesses get access to funds in seconds after a customer initiates a payment. This is compared to 2-3 days for standard ACH transfers.
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24/7 Availability: RTP transfers can happen anytime, day or night, even on weekends and holidays. This eliminates delays due to bank operating hours.
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Good for Time-Sensitive Payments: Getting paid quickly is useful when you need to access funds right away to pay employees, vendors, etc. RTP enables real-time cash flow.
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Works Between Participating Banks: Both the payer's and payee's banks must be members of the RTP network. But participation is growing rapidly.
Overall, RTP brings the benefits of digital payments like speed, convenience, and accessibility to business payments. For Bill.com users, it's a way to get paid faster and manage cash flow in real-time.
What is dual control in Bill com?
Dual Control in Bill.com provides an extra layer of security and control by requiring two people to review and approve key actions within the platform.
When Dual Control is enabled in Bill.com, here is how it works:
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Initiation - One user can initiate actions like creating or editing a bill, adding a new vendor, or processing payments up to their approval limit. However, they cannot fully execute the action on their own.
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Approval - A second, authorized user must review the initiated action and approve it before it can be fully executed in the system.
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Added Security - By requiring approval from two separate users, Dual Control helps prevent fraudulent or erroneous transactions since no single user has full unilateral control.
Enabling Dual Control is recommended for businesses that want extra oversight for financial transactions or sensitive vendor changes. It prevents any one user from unilaterally adding fake vendors or pushing through unauthorized payments.
Some common scenarios where businesses enable Bill.com Dual Control include:
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Requiring a controller to approve new vendor additions
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Requiring an executive to approve invoices over a set dollar amount
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Requiring a separate approver for weekly payment runs
By adding this extra approval step, Dual Control gives finance teams more oversight, security, and validation over financial transactions in Bill.com.
What are the default user roles in Bill com?
There are four primary user roles in Bill.com's Spend & Expense platform:
Admin
The admin role has full access and control over all features and settings in Spend & Expense. Key responsibilities include:
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Adding and managing users
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Configuring workflows and approval rules
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Managing accounting integrations
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Accessing all reporting dashboards
Auditor
The auditor role has read-only access to transactions, reports, and charts to audit spending activity. Auditors cannot edit or approve transactions.
Bookkeeper
The bookkeeper role can add new vendors, enter and edit transactions, match bills to purchase orders, and manage unapproved spend. However, bookkeepers cannot approve bills or release payments.
Member
The member role allows users to enter new spend transactions like expenses and invoices. Members can submit transactions through Spend & Expense but cannot approve or manage workflows.
The assigned user role determines the permissions and actions available to each Bill.com user. Most organizations need a combination of roles like admin, bookkeeper, and approver to cover core business functions related to managing finances and paying bills.
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Key Tax Compliance Requirements
As a business using Bill.com for financial management and payments, it's important to understand your core tax compliance obligations. Properly tracking and reporting taxes not only meets legal requirements, but can save your business money down the line through accurate documentation.
This section will cover critical tax compliance tasks including issuing 1099s and W-2s to contractors and employees, as well as best practices for yearly tax filings and documentation within Bill.com.
1099 Tax Forms
If your business paid over $600 to any non-employee contractor or freelancer over the course of a tax year, you must issue them an IRS Form 1099 documenting those payments by January 31st. This applies whether you hired designers, developers, consultants, or other independent contractors.
Within Bill.com, you can easily track payments to non-employees to determine who qualifies for a 1099. Simply filter the Vendor Payments report by 1099 status. You can also enable 1099 tracking during vendor onboarding to automatically log their tax status.
Come tax season, Bill.com makes it easy to bulk generate 1099 forms right within the platform. Simply access the 1099 Tax Forms page and select vendors who qualify. Bill.com will automatically populate payment details from tracked transactions. Download and send digitally right from the platform.
W-2 Tax Forms
For any employees on payroll, businesses must issue an IRS Form W-2 by January 31st to record compensation and withheld income taxes for the year.
Within Bill.com, be sure to classify workers appropriately as vendors vs employees during onboarding. For employees, enable W-2 tracking to automatically log payroll payments, withholdings, and relevant tax details needed to generate W-2s.
You can conveniently access employee W-2 details and bulk generate forms pre-populated with compensation data directly in Bill.com at year-end, eliminating manual documentation.
Yearly Tax Filings
All businesses must file annual tax returns with the IRS and state tax authorities reflecting revenue, expenses, profits, losses and liabilities. Proper documentation across Bill.com of all financial transactions simplifies this process.
Best practices include:
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Classifying transactions with expense tracking tags
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Noting tax-related transaction details
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Attaching supporting documents and receipts
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Regularly reconciling accounts
This creates an accurate paper trail for your accountant to assess tax liabilities, deductions, and produce filings. You can also export convenient reports from Bill.com organized by categories or tax status.
With the right workflows in Bill.com, you can reduce administrative tax burdens and set your business up for easy, automated reporting and filings.
Bill.com Accounts Payable Best Practices
This section outlines recommendations and guidelines for managing accounts payable workflows in Bill.com to ensure tax compliance.
Properly Categorizing Expenses
Correctly categorizing expenses within Bill.com ensures expenses are allocated to the right departments, projects, etc for accurate tax reporting. Here are some tips:
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Set up a clear chart of accounts and expense categories aligned to your business needs. For example, break down categories by department, project, location, etc.
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Train staff on properly selecting categories and chart of accounts when entering bills and expenses.
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Review expenses periodically to catch any categorization errors. Reports in Bill.com can identify expenses mapped to generic accounts for easier correction.
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For complex organizations, use class tracking to assign multiple categories to expenses for allocation across departments.
Proper categorization takes some upfront work but avoids issues come tax time. It also provides better visibility into spend by area.
Appropriate Use of Accounts
Designating separate general ledger accounts for tax-related transactions can simplify tax preparation and prevent errors.
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Set up dedicated accounts for sales tax paid, VAT, payroll taxes, etc. rather than combining with other expenses.
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When paying sales/VAT taxes on vendor bills, enter them as separate line items mapped to the correct accounts.
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If you collect sales tax from customers, ensure it is properly accounted for in liability accounts.
Segregating tax payments into designated accounts simplifies reporting and reconciliation when producing tax documents.
Custom Fields for Tax Details
Setting up custom fields in Bill.com to track tax-related details for expenses and vendors streamlines tax reporting.
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Add custom fields to capture tax ID numbers, exemption status, tax rates paid, etc.
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Use custom fields to tag vendors that collect sales tax or require tax reporting.
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Set custom fields to require entry where applicable to prevent missing details.
With the right custom fields, essential tax details are captured upfront rather than needing to hunt them down later. Reports and exports will include the custom fields for tax preparation.
Bill.com Accounts Payable Tutorial: Ensuring Tax Compliance
Managing accounts payable properly in Bill.com is critical for meeting tax compliance standards and avoiding penalties. This tutorial provides key tips on setting up vendors, processing invoices, reconciling at year-end, and using approval workflows correctly.
Setting Up Vendors for 1099 Processing
When adding new vendors in Bill.com, be sure to:
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Accurately enter the vendor's legal name and tax ID number for 1099 reporting purposes. You can request a W9 form from each vendor to verify this information.
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Classify each vendor appropriately as a corporation or individual. Bill.com uses this to determine which vendors will receive 1099 forms.
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Enable the "Eligible for 1099" setting for any applicable vendors. This flags them for year-end 1099 processing.
Following these steps ensures you have accurate vendor information for sending 1099 forms and avoiding penalties.
Processing Invoices with Tax Compliance in Mind
When processing vendor invoices in Bill.com, keep tax compliance in mind by:
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Including all relevant expense details like total amounts and itemized product/service costs. This provides clean documentation.
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Attaching supporting documents like receipts and work orders. This creates an audit trail.
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Tracking billable expenses separately from non-billable ones. This simplifies expense categorization at tax time.
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Entering accurate GL coding. This enables correct data sorting for tax filings.
Processing invoices properly gives you the details needed for tax reporting.
Reconciling Accounts Payable at Year-End
Reconciling accounts payable data is vital for accurate 1099 filing and tax payments. Be sure to:
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Match Bill.com AP data with your accounting system to identify discrepancies.
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Research and resolve any inconsistencies through vendor/receipt verification.
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Confirm totals for 1099 reporting by vendor. Print year-end vendor reports from Bill.com for reference.
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Adjust unresolved payment discrepancies through journal entries or vendor credits/debits.
Year-end reconciliation ensures your 1099 forms reflect true and accurate vendor payment totals.
Utilizing Bill.com's Approval Workflows
Bill.com's flexible approval workflows feature enables tax compliance by:
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Routing invoices to managers for review before payment approval. This prevents erroneous or duplicate payments.
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Requiring secondary approvals for invoices over set amounts. This limits risk of large, fraudulent expenses.
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Allowing rules to match org hierarchy and policies. This maintains proper controls and oversight.
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Providing an audit trail of approvals. This simplifies compliance monitoring and reporting.
Configure approval chains thoughtfully to enable organizational oversight while meeting tax obligations. Maintaining proper controls over payments is key for compliance.
Following this Bill.com accounts payable tutorial will help enable accurate 1099 tax reporting and prevent non-compliance penalties. Let me know if you have any other questions!
Leveraging Reporting Features for Tax Compliance
Bill.com contains a variety of built-in reporting tools and analytics that can assist with tax compliance requirements.
Expenses & Vendor Reports
Running Expense Reports and Vendor Reports in Bill.com provides the necessary data to easily identify tax deductions and produce 1099s. Some key points:
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The Expense Report shows all expense activity over a specified period, including expense amount, vendor, category, approvals, and more. This allows you to filter and identify deductible expenses.
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The Vendor Report provides a summary of total spend with each vendor. This can be used to determine which vendors require 1099s based on annual spend thresholds.
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Reports can be exported to Excel or PDF to share with accounting/finance teams.
Audit Trails for Tax Purposes
Audit trail reports create a detailed log of all financial transactions within Bill.com, simplifying tax audits.
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Every action is tracked, including payments issued, bills entered, approvals, edits to transactions, etc.
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Date, time, and user details are captured for each event.
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Audit trails can be searched and filtered as needed.
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Provides clear documentation for accounting purposes.
Custom Reporting for Tax Compliance
Bill.com enables users to build custom reports filtered by specific date ranges, vendors, expenses types, and other criteria to extract tax-related data.
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Custom reports allow you to specify exactly which data fields to include.
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Filters can be applied to only show tax-deductible expenses for example.
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Visualizations like charts and graphs can be added.
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These customizable reports are useful for pulling very specific tax data.
By leveraging Bill.com's reporting tools, businesses can simplify tax compliance requirements and audits. The visibility into expenses, vendors, and overall transaction history assists with identifying deductions, producing 1099s, and having audit trails available if needed.
Conclusion and Summary of Tax Compliance in Bill.com
Core Tax Obligations Recap
As a recap, the core tax compliance responsibilities for businesses using Bill.com include:
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Issuing 1099 forms to contractors and vendors paid over $600 annually
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Filing W-2 forms for employees
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Submitting quarterly payroll tax returns
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Recording and categorizing expenses properly for tax deductions
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Maintaining up-to-date financial reporting
Following these obligations is critical for all Bill.com users to remain compliant and avoid penalties.
Top Recommendations for Bill.com Users
To effectively manage tax compliance in Bill.com, key recommendations include:
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Set up Custom Fields to track tax details like 1099 status for vendors
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Use Expense Groups to categorize expenses for tax reporting
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Run Accounts Payable Aging and Unpaid Bills reports regularly
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Customize GL Coding rules to simplify expense accounting
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Consult a tax professional for guidance on deductions and filings
These tips will streamline tax management and ensure full compliance.
Further Assistance with Bill.com Tax Compliance
For further help achieving tax compliance within Bill.com, consider:
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Enrolling in a Bill.com training course on tax features
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Hiring an accounting firm specializing in cloud-based software
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Using Bill.com's customer support knowledge base and community forums
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Contacting a Bill.com sales representative for customized solutions
With the right assistance, Bill.com can be an invaluable tool for managing business tax obligations.
