Monday, May 10, 2010

A huge change in filing income tax is coming for small businesses in 2012

There are a few sentences on the new Health Care bill that will cause a very big change for small businesses and the paperwork that they have to file, and probably how they do business with other businesses and individuals.
The new law goes into effect in 2012, and it basically says that any business that pays more than $600 in a tax year to another individual or business for goods, supplies or services, is required to file a 1099 for that expense.

For example, if you buy more than $600 worth of vintage stock to resell from one place/person within a tax year, you have to collect the tax information of that place/person and issue them a 1099 at the end of that tax year - whether the place that you buy from is a thrift shop, an antique shop, a wholesaler or even an individual cleaning out a relative's closet.

Buy a computer or printer - whether it's a big company or a local guy - you have to issue them a 1099 if it's over $600.

Pay more than $600 a year in fees to ebay, etsy or PayPal - you must issue them 1099s too.
Spend more than $600 a year for shipping - then you have to send your carrier 1099s, whether it's FedEx, UPS or even the government itself - USPS.

If you make a lot of little purchases from one place, whether it's a thrift shop, the cleaners, or office supply store - you have to keep a tally on what you spend there during the whole year. If your payments to a single place hit $600 for the year, then you have to issue them a 1099.

If do not issue a 1099 at the end of the tax year, then you can't claim the expense on your taxes - even if you have receipts for it. You must now have a 1099 with those receipts to prove that it has been fully reported to the government.

How much time do think this is going to add to your work schedule? First collecting information like addresses and tax id's from everyone that you buy from - it's hard enough to get receipts from private sellers. Keeping a running tally on each place that you buy from during the tax year. Then typing up those 1099s at the end of the year - which you have to send to the individual that you made the purchases from and to the IRS.

The point of this new law is that the government has always felt that millions of dollars worth of income is going unreported to the IRS each year. So this law is really making businesses snitch on each other, to make sure that they each report all of their income. If you are on the receiving end of a bunch of 1099s they all have to be included in your tax report.

The government wants to know how much money you are making so that they can collect all of the taxes that they feel they should be getting from you and to determine how much health care you are really eligible for.

This law has already passed because it was included in the Health Bill, and it is set to start in 2012. The IRS is planning on hiring 1000s of new employees to handle this change. Congressman Dan Lungren from California has introduced legislation to repeal this new law because it would be such a huge a burden to small businesses. Let's hope that others will join in.

Here are serveral articles about the changes in 1099 filing coming in 2012 -

Costly changes to 1099 reporting in health care law - from AccountingWeb

Health bill floods business in paper - from

Health care law's massive, hidden tax change - from CNN Money

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