Tax Change Means More Paperwork For Small Business Owners

Going into effect in 2012, 1099 tax changes included in Health Care Reform legislation will increase IRS red tape for small businesses by extending reporting requirements for purchases …

Going into effect in 2012, 1099 tax changes included in Health Care Reform legislation will increase IRS red tape for small businesses by extending reporting requirements for purchases from corporate entities. But a cash-strapped Uncle Sam is unlikely to repeal the unpopular new rule since it is projected to add almost $20 billion to federal coffers over the coming decade. See the following article from The Street for more on this.

Onerous Form 1099 reporting requirements, passed with the Health Care Reform Act in March and set to start next year, continue to bear down on small-business owners.

Business owners issued 1099s previously only to single noncorporate vendors they paid $600 or more during the tax year. The payments were for services and included other items such as interest, rents and royalties.

The first change to the 1099 rules is that property and goods payments are reportable. The second is that business owners will have to issue 1099s to corporate vendors with whom they buy $600 or more of goods or services per tax year. As a small-business owner, I know how ridiculous the rule is. I would need to issue a 1099 to the likes of Verizon(VZ_), Staples(SPLS_), Lenovo and other multinational corporations.

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What the heck does issuing 1099s to corporate entities have to do with health care reform? The simple answer is: “revenue raiser.”

The government projection is for collections of $19 billion over a 10-year period. That’s right, you read that correctly: The government is going to collect $19 billion from those deadbeat corporate entities underreporting revenues.

In reality, the only way I can see this raising any revenue is by the government collecting from the small-business owners for failing to file, since the government recently raised the penalties for intentional failure to $250 per Form 1099.

I am still hoping common sense will prevail and the new requirements will be repealed or at least modified. One possible modification would be to exclude issuing 1099s to publicly traded entities. Our publicly traded entities have far too many perfectly legal tax avoidance mechanisms to simply underreport revenues.

The recently enacted tax legislation failed to roll back the new 1099 rules in spite of acknowledgement they will create a paperwork nightmare. There were failed repeal attempts in September and late November, and legislators say they will try again this year.

Repeal or modification is unlikely, though, until the government comes up with $19 billion from somewhere else.

This article has been republished from The Street. You can also view this article at
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