A flood of new tax paperwork is coming.
In the Health Care bill recently signed by Obama, all companies will have to issue 1099 tax forms, not just to contract workers, but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
Businesses will have to issue millions of new tax documents each year. So, if you buy more than $600 from Staples for office equipment, the law also requires that your small business issue Staples a 1099, in order that the government can be sure that Staples reports all their income. Don’t forget too, if you use your vehicle for business and buy all your gas from 7-11, then you better prepare yourself to ask the clerk at the counter for the Federal ID for 7-11 if you pay 7-11 more than $600 for gas in a year.
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations. Taken together, the two seemingly small changes will require millions of additional forms to be sent out.
And if you think the big headache is that you’ll have to send 7-11 or Staples a 1099, think again! This will be a data collection nightmare, since all small businesses will need to be gathering names and taxpayer identification numbers for every payee and vendor that you do business with. Many joke that the only ones who will benefit here are the accountants, since we’re going to be spending a lot more time instructing clients on the gathering, input and printing out the 1099′s.
We are expecting further clarification from the IRS on this new rule, and will keep you posted as we hear.
Steven A. Feinberg – www.AppletreeBusiness.com – Get Appletree Blog via Email!
Filed under: Uncategorized Tagged: | 1099
[...] The second law involves the new requirement that requires businesses to issue 1099′s without regard to whether they received a product or service, and without regard to it being a corporation or individual, as I explained in All small business owners must now issue STAPLES and other vendors a 1099 for all their purchases ea… [...]
An Excellent point, Dustin! This can only hurt small business. My crystal ball says that the IRS will come up with some rule that will exempt certain vendors such as Staples or 7-eleven. So if I’m a small business owner, I’ll probably WANT to do business with Staples, in that case, rather than the competing small business owner down the street, because I’d have to worry about issuing the guy down the street a 1099.
The word is only now starting to hit the street about this new rule, as USA today commented on it a few days ago…Stay tuned…
and how many small business vendors will lose sales when companies consolidate their purchases to reduce the amount of record keeping and paper work? This is insane.