Did you know there’s a new tax provision tucked in the health care bill passed earlier this year that could carry an impact on your small business?
The Patient Protection and Affordable Care Act requires that all companies issue 1099 tax forms to any corporation or individual – not just to contract workers – from which they buy more than $600 in goods or services within a given tax year. This law is effective for purchases made in 2012 that will be reported on 1099 forms filed in 2013.
According to CNN Money, “the bill makes two key changes in how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.”
Bill Rys, tax counsel for the National Federation of Independent Businesses, also said, “It’s a pretty heavy administrative burden, particularly for small businesses without large in-house accounting staffs.”
So under the new rules, if you buy a costly new guitar to support your career as a musician, you will have to send the retailer a 1099 at the end of the year for that purchase. If you run a floral shop, you will have to send 1099s to each of your suppliers. The more sources you rely on for your business, the more 1099s you will have to issue.
Do you need the Advil yet?
Karen Kobelski, our general manager at BizFilings, recently addressed this issue in a press release. She said, “Incorporating adds a layer of credibility which could be critical as companies may look to reduce the number of companies they conduct business with to alleviate 1099 paperwork. Formalizing a business as a corporation or LLC may help small business owners compete on a more level playing field with larger competitors.”
To learn more about incorporation and its benefits when stacking up against the competition, just visit our Learning Center at BizFilings.com.
How do you think this law will impact your business?
I agree that more formally organizing your small business may help in retaining customers. Likewise more sophisticated book-keeping will help in reducing the tax book-keeping nightmare. There is also a bigger political picture and we small business owners need to be active in that arena.
I am a strong Obama supporter. I can appreciate why the administration is doing this–to identify more taxable revenue not being reported by micro and small businesses–in order to cover the nation’s health-care bill.
Unfortunately, it also reflects President Obama’s tendency to surround himself with others like himself, lawyers, government and university people. His administration has little in-put from the small business community. It is in the micro and small business arenas where most of the nation’s badly needed new jobs will be created, and this requirement is a new and significant financial and time burden on these businesses.
Furthermore, this requirement will generate literally billions of forms. How is the government going to sort and collate them all so they can be used by IRS auditors in locating unreported income?
Those of us in the business community need to do more to convey our concerns about this ill-conceived requirement to our elected representatives and get it repealed.
If the requirement is not repealed, we need to file our taxes on paper and bury Washington under billions of pieces of paper.
Geoffrey Gyrisco, Ph.D.
Realtor
Keller Williams Realty, Madison, WI
It’s nice to hear from a fellow Madisonian!
You make valid points in calling for more small business owners to voice their concerns to our elected representatives. It is time to take action to improve our nation’s business climate. Small businesses provide the most employment opportunities, produce more new services and products, and are heavily involved in their local communities. By re-positioning public policy toward small business success, we can help drive economic recovery while improving the opportunities and prosperity of our country.
Thanks again for your response!