There’s a “sleeping giant” in the new health care legislation that could turn into a logistical nightmare for small business owners.
Alert: The new law imposes significant new tax reporting requirements starting in 2012. In essence, a business will have to report most payments whenever the total amount paid to the particular payee during the year exceeds $600. This new Form 1099 requirement will cover payments for both goods and services, including payments to corporations.
At least this little-discussed provision doesn’t kick in until 2012. So you still have plenty of time to prepare for the onslaught of new paperwork.
With business putting pressure on lawmakers to modify or repeal the new rules, expect Congress to revisit the issue.
Here’s the whole story: Under current law, a business must report on Form 1099 compensation (commissions, fees, etc.) paid to an individual, such as an independent contractor, if the annual amount exceeds $600. The same rule applies to interest, rent, royalties, annuities and income items paid to a single recipient.
Both the recipient and the IRS receive a copy of the 1099. It must include the total amount paid during the year, contact information about the recipient and the payer, and the recipient’s and payer’s Taxpayer Identification Numbers (TINs).
However, the current 1099 reporting rules don’t apply to most payments made to corporations. Also, your business doesn’t have to issue 1099s when it purchases goods. For example, if your business spends $10,000 on new equipment, there’s no requirement to report the payment.
New changes: Beginning in 2012, the new Patient Protection and Affordable Care Act of 2010 changes the current reporting rules in three ways.
1. Payments to corporations: The reporting exemption for corporations no longer applies. For example, if you pay more than $600 to a company for providing technology services, you’ll have to report the payment on Form 1099. Ditto for rent payments to a corporate landlord.
2. Payments for goods: The reporting requirement is generally extended to cover property such as merchandise, equipment and raw materials. For instance, a manufacturer that purchases more than $600 in supplies from a vendor will have to issue a 1099 to the vendor and send a copy to the IRS.
3. Payments of gross proceeds: At this point, it’s not exactly clear what “gross proceeds” covers. Previously, this term has been used in regulations to describe payments to law firms. The IRS is expected to issue guidance shortly. Note that the $600 annual threshold remains the same.
These three new law requirements will likely affect you on both ends of the spectrum. As a payer, you may have to churn out significantly more 1099s and obtain the TINs of each recipient. As a recipient, you could be bombarded with forms and you must supply the payers with your own TIN.
Start gearing up now to accommodate the new rules. You can modify your business accounting procedures with the assistance of a pro.
Tip: Presumably, the IRS will require payments to be reported on Form 1099-MISC or a similar form designed for this purpose.
Like what you've read? ...Republish it and share great business tips!
Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...
We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.
The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.
" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/12538/the-burdensome-new-1099-reporting-rules-coming-or-going "