A couple of days ago I was in a meeting where a CPA stood up to explain some new changes regarding businesses and 1099’s. Somehow this is all a part of the health care reform bill.
So here it is for all of us small business owners:
As of January 2012 we will be required to send a 1099 to ALL vendors who we pay more than $600 in a given year. Yep, ALL VENDORS. This includes your landlord, your utility company, any equipment purchases over $600 from the same company, cleaning service you may use, towel service, Costco supplies, etc. It was estimated that small businesses will be issuing between two to three hundred 1099’s per year. The exception to this is if you make vendor purchases with credit cards. Apparently banks will now be reporting all of our cc purchase info to the IRS…
Absolutely crazy! I suspect that one of the unintended consequences of something like this going into effect include vendors going out of business (small businesses will likely try to consolidate vendors to avoid extra 1099 paperwork and expense) and therefore increased unemployment. And/or increased revenue for credit card companies as more businesses use credit for these expenses to avoid having to 1099.
Here’s a CNN Money article that explains more on the reform.
Fun stuff!
This is an interesting and timely post, however, in your critique of the bill you failed to mention that the purpose of this change is to generate tax income from small business income that frequently goes unreported. That new tax income will then be used to help fund the health care bill that will enable health care coverage millions of Americans, including employees of small businesses. In effect, government subsidies to those small businesses will either reduce health care costs or lessen the cost burden for employees. Thus, while the new bill will increase the administrative paperwork burden, the ultimate aggregate cost effect will likely be neutral. Tying this bill to a driver of unemployment is a stretch to say the least.
Thank you for your post. The most concerning thing about the bill is that hardly anyone really knows what’s in it, ie very few people (myself included) have waded through the thousands of pages of legalese to understand the full ramifications of what’s included. And according to the accountant that spoke at the meeting I wrote about there are sections of the bill where there is just empty space for things to be added in after the fact.
OMG.
This is ridiculous! I can’t even stand filling out the sales tax forms! What a pain in the ass it will be to track and fill out 1099′s for our 3 separate businesses. Good info to know. Thanks for the heads up.
AHHHH! I never liked this health care bill from the start, now I am really hating it! Let’s all move to Galt’s Gulch and start our own actual “Free” society. If the stupid thing wasn’t 8 trillion pages long I’d read through it and see what other bogus, not-health-care-related poo is in it!
Nicki,
Thanks for an insightful post. As a tanning salon owner, I already hated this bill. We get to pay for the bill twice now. Now I have another reason.
I’m an avid listener of Robb’s Paleolithic Solution podcast and found a link to your site on his. Fortuitous timing to say the least.
John
Great, just what I love, more paperwork!
Ian said: “This is an interesting and timely post, however, in your critique of the bill you failed to mention that the purpose of this change is to generate tax income from small business income that frequently goes unreported.”
Ian, the problem is that the people that don’t report the income now aren’t going to do it when the law comes into effect. Most people abide by what the congress says, and they are the ones that already report income, and yet they are the ones getting penalized with extra bureaucratic crap to do. Law-abiding business owners will be spending more and more time filling out forms instead of helping current customers and getting new business.
Ian said: “. . .government subsidies to those small businesses will either reduce health care costs or lessen the cost burden for employees. . . while the new bill will increase the administrative paperwork burden, the ultimate aggregate cost effect will likely be neutral. Tying this bill to a driver of unemployment is a stretch to say the least.”
With respect, it is a driver for unemployment. This legislation will have the effect of raising healthcare costs, not lowering them. The more costs per worker a company has, the less funds the company has to hire more workers. Of course, some people like to cite the CBO which says this will reduce costs. Keep in mind this is the same CBO that said the Iraq war would be at most $85 to $200 billion, but the actual numbers are somewhere around $3 to $4 trillion.
The bottom line is that this is going to hurt smaller businesses and the extra costs of complying with all the new laws are going to stop some new businesses from even starting by creating an artificial barrier to entry. Sadly, the only people that will be able to shoulder all of this easily are very large corporations with large amounts of money, large office staffs, and large numbers of lobbyists.
***My apologies for my lengthy soapbox rant. If this is comment is deleted, I completely understand.
In 2012, the health care reform law will require ALL businesses, governments and charities to issue 1099 forms to vendors they pay over $600 for goods and services. This will undoubtedly financially crush thousands of small-and-medium-sized businesses who work for these companies. Read alliantgroups’ (www.alliantgroup.com) Dean Zerbe’s take on the 1099 burden and where its repeal currently stands in Congress and the administration. http://bit.ly/cG7USr
gotta love the smell of bigger government.