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What’s ahead? How about being buried under new tax forms!

It was bound to happen. Something buried in the health care reform bill that will cause small business owners more grief than this year’s NBA playoff ouster for Cleveland Cavaliers fans!

This shocking news was revealed by Neil deMause on last week. If you saw it, you’re already ticked. If you missed it, you can catch up to the rest of us now!

Inside the 2,409-page health reform bill – you know, the one no member of Congress had time to read – was a provision for a massive expansion of requirements for businesses to file 1099 tax forms. In essence, all businesses will be required to file 1099 forms for every business from which they purchase $600 worth of goods or services! Just the thought of the paperwork, tracking, accounting costs and related administrative expenses should be sparking outrage among small business owners.

This is actually the latest move by the IRS to find unreported income that will rain down new tax forms. This expands the requirements for filing the “1099-Misc” form, which companies use for recording payments to freelance workers and other individual service providers. Until now, payments to corporations have been exempt from 1099 rules, as have payments for the purchase of goods.

But starting in 2012, all business payments or purchases that exceed $600 in a calendar year will need to be accompanied by a 1099 filing. It means obtaining the taxpayer ID number of the individual or corporation you’re making the payment to, at the time of the transaction, or else facing IRS penalties. Yes, it will even apply to giant retailers you might use like Office Max or Costco. Bottom line: the 1099-Misc will change from tracking off-payroll employment to one that must accompany virtually any sizeable business transaction.

Tom Henschke, president of the Pennsylvania-based SMC Business Councils, describes it like this: “Phone service: 1099. Computer service: 1099. Whoever does your postage meter: 1099. You do a little advertising, Yellow Pages: 1099. Your landlord: 1099. You might as well just keep them in your pocket and hand them out as you go around every day.” It would be funny if it were not true.

Henschke’s SMC had previously surveyed its members and found they averaged 10 filings a year of 1099 forms that took about 30 minutes each to prepare. The SMC survey further found that if 1099s were extended to services purchased from corporations, it would increase the number of filings to about 200 per year for a typical small business. That would add an estimated $6,000 to the cost of preparing the average tax return. But it’s a lot worse than that: the SMC study did not anticipate any requirement that 1099s be filed for all purchases of goods! That now puts costs and hassles in the stratosphere!

Surprise, surprise — no one in Congress is willing to take credit for how this got into the health bill. Some say it was a change waiting for the right moment. So, when debate was boiling over the costs of health care reform, supporters began a frantic search for “revenue-raisers” to bring down the net cost. Bingo – the 1099 provision went into the bill stealth!

So what can you do about it? Well, you can write your congressman and senators and tell them they should have read the bill and taken time to learn of the immense burden this IRS move will place on your small business. Of course, you gotta hope they have time to read your letter! Or, you can alert your accountant or IT person to start thinking about how to deal with this coming nightmare.


10 comments on “What’s ahead? How about being buried under new tax forms!

  1. Bryon

    I am starting my mailings now to the only senator a republican who will do something. Do you think the demoncrats want to change this? After this November we will see a massive change in faces in congress.

  2. Fred DeFinis

    Norm, you are right on target. I have actually read in some liberal paper that this is a good thing for small businesses because it will force them to upgrade their systems and record keeping. Of course, it will take valuable time and resources away from focusing on our respective businesses. Imagine a business with hundreds of suppliers such as a retail store!

    Does anyone know the tax ID number for the US Post office?

  3. Doug Reimel

    Hello everyone! I am in a mood. I just filed for the copy right on 2 sizes of rolled 1099’s. The standard size has eight hundred sheets and can be purchased in comfort soft. Warning this size does not like to actually be written on.

    The second size is larger in size and easier to write on, the blocks are even bigger and require 2 hands to operate. Can also be used to clean up messes. Ahem!

    The enviromentalist should be up in arms because this will require more trees to be harvested for the extra paper.

    As for the stimulus this will require, (Theoretically of course) more employees to fill out the documents.

    I will be having a training program availabel for all of you. This special program will cover the basics of attaching the postage stamp. And yes I will 1099 you for the course because the course is more than $600.

    Just in, Breaking news! Please upload all your friends, relatives, and anybody you come into contact with and I will send you a pre-loaded list of 1099’s on easy to use flash drives for your convienence. Oh, yes, and another 1099 with your name on it.

    I forgot to mention I did purchase the website and since I used more than the alloted word count I need your address and social security number for the 1099 that I need to send you.

    I just notice I did not have my Kool Aid, Sorry!!!

  4. AnonymousBob

    Have you all read the provisions of the bill that indicate what exactly will require a 1099? My hunch is that the answer is no and that Chicken Little is flying around. 1099’s have been required for years for certain expenses (namely, contract labor or non-taxable expenses) that exceed $600 in a calendar year. The IRS can track your expenses over $600 to your utility companies, landlords, postage stamp vendor, etc. by way of their business financials (does the “Revenue” G/L account sound familiar?).

    I’m always leery when posts reference what so-and-so said, especially when so-and-so makes statements based in hyperbole or exaggeration. Mr. Henschke seems to be stoking the flames of fear when he states we should keep 1099’s in our pocket and hand them out whenever we make a purchase. Sounds a little far-fetched to me. Maybe I’ll contact my Senator and Representative to see if this is really true. And I’d suggest you do the same to make sure we are having constructive conversations. You know, use a little common sense, critical thinking, and less jumping to unfounded conclusions.

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