Get your paper trail ready; expansion of 1099 use coming in 2012
June 29th, 2010 by Julie ViolaInteresting to note with all the attention that has been focused on the healthcare reform law, a minor change with a major impact is dodging the spotlight. As this article from CNN notes, an enormous bureaucratic burden is looming.
The change revolves around expanding the use of 1099s from pertaining to contract labor to now including any individual or corporation from which companies purchase goods and services. Whereas in the past, companies that paid contractors more than $600 over the year needed to issue a 1099, the new law calls for companies that purchase anything over $600, from anyone – an individual or a corporation – to do the same. A small company that buys $2,000 worth of office supplies from Staples? 1099. A moving company that buys $750 worth of accessories from Autozone? 1099.
Amazing that a few small word changes will results in millions of additional forms being sent. The Administration stands by the change, saying that when it goes into effect in 2012 it will cut down on fraud while aiding in data collection. As for its placement in the healthcare reform bill, CNN makes a nice point:
Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
A Democratic aide for the Senate Finance Committee, which authored the changes, defended the move.
“Information reporting improves tax compliance without raising taxes on small businesses,” the aide said. “Health care reform includes more than $35 billion in tax cuts for small businesses…indicating that during these tough economic times, Congress is delivering the tax breaks small businesses need to thrive.”
Adapting to the new law will certainly prove onerous – especially for small businesses – and tax preparers will need to help their clients stay ahead of the game.
June 30th, 2010 at 4:01 pm
My response in a word: OUCH! We are very small, and this will absolutely be a burden.
June 30th, 2010 at 5:09 pm
As small and mid-size businesses are trying hard to be as efficient as possible, the administrative burden and barriers created by the government are countering these efforts.
June 30th, 2010 at 6:48 pm
This is yet one more onerous regulation that will cost much more to monitor than it will generate in additional tax dollars and exactly the kind of thing that makes government even bigger. The insidious kind of back door politics that allow something like this to happen is proof of two things: 1) someone knows what they are doing and has pulled the wool over the eyes of an inept congress and 2) proof that the inept idiots we have representing us don’t read proposed bills and simply follow their leaders like the lemmings they are.
Nick Rutsis
July 12th, 2010 at 7:21 pm
ok, I own a 1 woman yarn shop. I stock as many types of items that I can get in that my customers might use. I have 350 vendors on my books, at least half of which will need the forms. I also sell a custom yarn to other yarn shops. I have 3000 customers. Let’s see: I will need to put out about 175 1099’s to established businesses, and I will be receiving about 1000 1099’s from other yarn shops. I can cut down on the number of vendors I buy from. I expect to do that in an effort to minimize the enormous impact this will have on me. My vendors are already going out of business at an appalling pace, but there is little I can do about that.
The 1099’s that I get in will have to be individually checked to make sure the numbers are correct, and that I actually got a 1099 for the amount they paid me rather than the amount they owed me. Otherwise, the IRS will be down my throat. That will be about 3-500 hours of work if they are all correct. It looks unlikely many 1-2person shops will be staying open. One wonders if that is the law’s intent.