NEW 1099 FILING REQUIREMENTS

By now most people have heard something about the massive health care overhaul that will occur due to the passage of section 9006 of the new Health Care Reform Bill.  Many companies are trying to figure out how the bill will affect their medical plans and related expenses.  However, they may not be aware of another change resulting from the bill that will have a major impact on the financial record keeping of businesses and has little or nothing to do with health care.

Under current law, businesses, only in certain circumstances, have to file 1099s when payments of $600 or more are made. Unless the Health Care Bill is repealed or otherwise changed, as of January 1, 2012, businesses will be subject to several new requirements.  For one, small businesses that provide goods or services will be required to send 1099s to every entity (individual or corporation), with whom it does more than $600 worth of business.  This will have some accounting and tax-related issues discussed below.

How Will This Affect Me?

As a business owner, you will have to make sure that you keep very detailed accounting records for all your company expenses, including obtaining the tax identification number of every person and entity with whom you do business.  You will have to determine which individuals, corporations, partnerships, etc. were paid more than $600 by you throughout the year for goods and/or services.  Finally, you will have to prepare a 1099 for each and every one of those entities (with the exception of certain tax-exempt entities).

For example:

If you travel often for work in a company vehicle for business, you probably have a gas station or two that you visit frequently.  When this new law goes into effect, you will have to carefully monitor how much money you spend at that station throughout the year.  If you spend more than $600 then you will have to send them a 1099 at the end of the year and a copy of that form to the IRS.  If you have a restaurant that you frequent with business clients, and you pass the $600 threshold you have to issue 1099s for them too.  Also, on the reverse side, anyone that buys more than $600 of product or service from you will have to send you a 1099 form.  You will then have to keep track of extra 1099s going out and coming in.  These 1099 forms will also have tax implications.

Why Would They Do This?

Many people are upset about the new 1099 requirements, and some think it is just a poorly thought-out plan lost in the pages associated with the Health Care Reform Bill.  Advocates of the change, however, believe the benefits outweigh the potential negative impact the changes could have.  The Health Care Reform Bill must be properly funded, and the 1099 changes are aimed at bringing in more tax money by limiting the number of fraudulent expenses claimed by businesses.  In addition, the changes are designed to reduce the amount of revenue that goes unreported by allowing the IRS to ensure that an entity receiving payment properly claims the income.

Most people will find these new changes to be overly burdensome.  No matter what your opinion is on the matter unless the Health Care Reform Bill is repealed or amended, they will go into effect on January 1, 2012 so you better be ready.

For more information, contact Moskowitz, LLP.

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