For biz geeks – Starting in 2010 any taxpayer with business income will need to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services that year unless they use a credit or debit card for the purchases… Greg writes –
Meanwhile, the IRS will have its hands more than full trying to administer everything else this law requires, according to the Washington Post. Some of this is just beginning to sink in to the minds of the public. In 2012, every business, including sole-proprietorships, will have to issue a 1099 to anyone from whom it buys $600 worth of goods or services. The IRS’s Tax Advocate Service says, “For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases.”
When I try to explain this to business groups, they invariably reply, “No, that can’t possibly be right. You mean if I buy $600 worth of paper from Wal-Mart in the course of a year I have to get their IRS number, the address of the corporate accounting office, send them a 1099 and another copy to the IRS?” Yep. That’s exactly what it means…
I don’t know, but the Tax Advocate Service estimates 40 million businesses will be affected. And no money was appropriated to cover the cost. CNN Money reports that purchases made with debit and credit cards will not be subject to this new rule, because “a separate reporting requirement kicks in next year that will cover card transactions and help the IRS spot unreported payments made through those channels.” The article quotes Tom Henschke, president of SMC Business Councils, as estimating only 10 percent of all transactions will be exempted. He says, “Most of the small businesses out there that do small business [purchasing] don’t do it by credit card. One of the reasons is the transaction cost is very high – 2% to 3%.”
It’s unclear there are enough human or computer cycles to do anything with all the 1099 information that will flood the IRS too. This will be interesting to watch, we don’t think the expanded 1099 reporting is going to end up happening the way it was first outlined once more people and businesses become aware of it.