Small Business: 1099-Misc Reporting Volume Up Significantly

As a business manager with an accounting background , I often wonder where the hell Congress’ common sense exited off the ramp and left the rest of us on the IRS tax highway to fend for ourselves.  There are major changes coming to accounts payable departments large and small due to the passage of the Patient Protection and Affordable Care Act on March 23, 2010.  The bill includes revenue raising provisions that will change current 1099 information reporting laws, resulting in higher payroll and processing costs, not to mention substantial increases in penalties and fees for the average small business.

Beginning December 31, 2011, the following provisions will change:  1.) Incorporated payees will no longer be exempted from 1099-Misc reporting; 2.) Payments for property (goods, materials, merchandise, supplies, etc.) will no longer be exempted from 1099-Misc reporting; 3.) there will be a six fold increase in penalties from $250,000 to $1.5 million for non-compliance; and, 4.) there will be a doubling of B-Notice penalties from $50 per record to $100 per record.

From a practical standpoint, what does all this mean for small businesses and how will it effect you?  First, you will be required to file 1099’s on all “for-profit” companies that sell either services or goods, regardless of incorporated status .  At my company, I easily estimate a five-fold increase in forms to file.   This could be a very conservative estimate, especially since you will now have to “1099”  Sam’s Club and every other similar vendor for  supplies purchased to operate your business.  Continuing this example, with postage at $0.44 per stamp (not for long!), postage costs would increase proportionately as well as costs for perforated tax forms and mailing envelopes.  What if the IRS imposed a $1.5 million penalty? – just forget about it – what small business could stand after this judgment!  And finally, if you’ve ever had the privilege to read a B-Notice, it includes the most obtuse language imaginable.  But get one Taxpayer Identification Number (“TIN”) wrong, which by the way is not hard to do, and you get to pay double the penalty.  All in the guise of improving greater compliance to the tax code.  Can anyone say “Fair Tax”?