Tax rule change causes big small-business ruckus

October 18, 2010

In the big tax fights of this year, the coming changes to who must get 1099 forms would hardly seem to rate. But for the vast majority of small businesses, these new rules will hit far harder than the estate tax, despite political posturing on that front.

USA-POLITICS/OBAMAThe new rules on 1099 forms, which were attached to the health care bill and are set to go into effect in 2012, call for all businesses, no matter how small, to file 1099 forms for goods as well as services, if those goods cost over $600 (the current threshold). It also gets rid of the distinction between corporations, which previously did not need to receive 1099s, and unincorporated entities, which did.

As someone who is considered a small business for tax purposes (as are all sole proprietors, consultants and self-employed people), I can’t help but think what this might mean for me. If I buy a new laptop, I’d better get the taxpayer ID number for Apple or Lenovo (depending on if I go Mac or not) and send that form off to wherever their tax department is located. And if I think I might spend more than $600 on pens, notepads, paper and the like at Staples over the course of the year, well, I’d better get their taxpayer ID number, too, and send them a form.

The 1099 form isn’t so bad if you’ve got the data, but the recordkeeping quagmire seems pretty clear. Will businesses that occasionally offer their employees pizza in a conference room need to get the local pizza place’s taxpayer identification number, then track the cost of all those pies to see if they amount to $600? Will truckers be required to send 1099s to the service stations where they fuel up? What about a company’s payments to the electric company to keep the lights on in the office? “It is a tremendous new administrative burden, and it is so senseless,” says Steve Henley, a national tax practice leader at CBIZ MHM, an accounting and financial consultancy.

The theory, of course, is simple: All that paperwork should help close the “tax gap,” the chasm between what Americans owe in taxes and what they actually pay. And  this provision is expected to bring in $17 billion over ten years, which would help offset the costs of the health care bill.

No surprise, the National Federation of Independent Business and a slew of other small-business groups have called for the provision’s repeal. During the debate over the recently enacted small-business lending bill, efforts to get the 1099 reporting requirements repealed failed, though it seems likely that they’ll be modified in some way before 2012.

Already, Internal Revenue Service Commissioner Douglas Shulman has said that the agency will exempt transactions done with credit or debit cards. (A separate law that goes into effect in 2011 requires card processors to file reports to the IRS.)

If you’re worried about the impact of these changes, you’ve got some time to prepare. If you’re running a start-up or one-person operation that doesn’t already have a separate business credit card, get one. Then if the rule sticks around, check to be sure that you have the legal name, address and taxpayer identification number of each of your vendors on file. If not, you’ll want to take some time next year to send Form W-9s out to all of them—including that local pizza place!

In the tug-of-war between the need for tax compliance and the recordkeeping difficulties of small businesses, what do you think is fair? And if you’re among those who will be affected by this provision, how will this change the way that you run your business?

U.S. Democratic presidential candidate Senator Obama picks up pizzas he ordered in Fairfield, Iowa
30/12/2007
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PHOTO: Barack Obama, on the campaign trail before he was president, picks up pizzas he ordered in Fairfield, Iowa.  REUTERS/Keith Bickford.

16 comments

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Only our US lawmakers could have been this stupid to put such a provision in a law.

Posted by fred5407 | Report as abusive

are our competitors in the “emerging” markets like China, Singapore, Brazil, Taiwan etc… have to deal with issues like these? Another smart way to lose productivity. Repeal please.

Posted by robb1 | Report as abusive

[…] Tax rule change causes big small-business ruckus | Analysis & Opinion |. Categories: Business, Charity, Economy, company, unemployment Tags: services, Small Business, […]

Posted by Tax rule change causes big small-business ruckus | Analysis & Opinion | « BizNOB | iNetwork 2 Networth | Report as abusive

Looks like there’s nothing this guy can touch without screwing it up…….. and that may include the pizzas. News Flash mister — the photo ops don’t cut it. Results do.

Posted by cynicalme | Report as abusive

Look, now he is doing something he is qualified for. “When your done with that order emty the trash.”

Posted by rocksavvy | Report as abusive

Those $17 billion billion over 10 years may decrease the GDP in one year for the same amount just due to the added paperwork. Want less Government bureaucracy? Well now you’ll have to do it yourself.

Posted by coolcef | Report as abusive

“News Flash mister — the photo ops don’t cut it. Results do.”

No, no, no. You smile, take the photograph, and post it. Win, win, win!

Posted by AverageOne | Report as abusive

They seem intent on reducing employment by increasing work and need for government employees.

Posted by cranston | Report as abusive

This provision was a lame attempt to kill the healthcare bill, provided by the Party of NO. Don’t blame others for their callousness; their hatred knows no boundaries.

Posted by bobSmith | Report as abusive

[…] The new rules on 1099 forms have small business up in arms. Entrepreneurial […]

Posted by Tax rule change causes big small-business ruckus « get-me-followers.com | Report as abusive

This will cost small businesses about what it will gain the IRS in revenue.

Posted by UC69 | Report as abusive

“This provision was a lame attempt to kill the healthcare bill, provided by the Party of NO. Don’t blame others for their callousness; their hatred knows no boundaries”

Hey Bob,
Before you comment, get your facts straight. This provision is a part of the original bill authored by the Democratic Party and since it’s passing, there have been 2 unsuccessful attempts, one by Republicans and one by Democrats, to repeal the provision. When it comes to business and those who work to carry the burden of our entitlement programs, it is the Democrats whose “hatred knows no boundaries”

Posted by inkwarrior | Report as abusive

This is what you get when the Dems are in power!

Regardless how bad you feel the previous administration was, Republicans do not pass this kind of Big Brother legislation.

If you are a business person and voted for Obama, I hope you are repentant!

At the least vote Tea Party candidates.

Posted by swips88 | Report as abusive

All of you who are so opposed to this provision: What are your suggestions to cover the tax gap. Government provides many services that the for profit sector will never provide. They must be paid for. How should this be done?

Posted by smalltowngal | Report as abusive

IMHO, the 1099s in Obamacare are all about laying the framework for easily implementing a VAT as it’s exactly what would be needed for reporting and tracking business activity for a VAT.

This isn’t to say a VAT is necessarily bad. A case can be made for a VAT to REPLACE the income tax to take effect when the 17th amendment is repealed.

If it came to a choice between 1099s & a VAT and no income tax vs income tax, a VAT might be a decent alternative. This of course assumes there’s some check and balance to prevent rampant special interest exemptions or inclusions, as well as making increases in the tax difficult to execute (like 2/3rds majority for either)… Just a few thoughts…

Posted by drfredc | Report as abusive

Don’t ask me or my business to pay benefits for someone who is not working. Health care is far too expensive a benefit to be given away for free – even partially free (subsidized) by the ones who are working.

This above mentioned law is about absurd as they get. Have you any idea how much work this will cause small biz owners? Many vendors will just refuse to provide 1099 data or inaccurate EIN #’s for the 1099s. Millions of 1099s will be submitted to the IRS with missing #’s because we can’t get the data from the vendors or don’t know where to send the vendor copy.

It will become a great big “make work” program for the IRS and the US Post Office. Have you any idea what a mess there will be at the IRS when these 1099’s start piling up at Holtzville NY.

All the Dems had to do to make this Health Care system functional is to create a mandate that all businesses have to cover their full time employees (yes even the Pizza Parlor). Part timers get taxed just like the unemployment system and granted a minimum level of benefits based on how much is in the reserve account and how long they have worked.

Posted by swips88 | Report as abusive

Did anyone actually read this article? The IRS is EXEMPTING credit and debit card transactions. If you don’t have a business credit card you need one just to be able to separate and prove your business expenses.

Posted by larrylarry | Report as abusive

[…] new rules on 1099 forms have small business up in arms. Entrepreneurial This entry was posted in Global News and tagged Causes, Change, ruckus, Rule, smallbusiness. […]

Posted by Tax rule change causes big small-business ruckus | One Stop Everything News | Report as abusive

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Posted by jimmy3456 | Report as abusive