Tax Tips for Entrepreneurs

Expanded 1099 Reporting Requirements

1099 reporting is old hat for small businesses. But recent legislation may expand the reach of 1099 filing requirements and significantly increase the reporting burden on American companies.

Small businesses are subject to a multitude of tax reporting requirements.

As a small business owner, you've probably invested no small amount time, energy and resources to make sure your company is in compliance with IRS income and payroll tax requirements.

One of the standard business reporting requirements is the 1099 MISC form. This form is used to report payments made from businesses to individuals or other businesses. Until now, this form was primarily used to report rents, royalties, and payments to independent contractors. Historically, corporations have been excluded, so if payment was made to a corporation the business wasn't required to file a 1099.

Buried deep within the 2010 healthcare reform legislation are stipulations that reconstitute 1099 reporting requirements and expand them to include an even broader range of recipients. Like it or not, your small business is going to need to adapt to the new 1099 reporting requirements over the next few years.

Overview of Expanded 1099 Requirements

The most significant change in 1099 reporting involves an expanded view of the types of transactions that are covered by the form. In the past, 1099s were issued for services provided by independent contractors and other entities. But under the new legislation, 1099s must also be issued to vendors from whom your business purchased $600 or more of products during any calendar year. So according to the letter of the law, if your company buys more than $600 of merchandise from your local Staples store, you will be required to issue them a 1099 and file a copy with the IRS. Although the new legislation doesn't take effect until 2012, it's not difficult to see the radical impact this legislation will have on businesses and other organizations.

Impact on Small Businesses

The rationale behind the inclusion of expanded 1099 reporting requirements in the healthcare legislation was that improved tax code compliance would offset the cost of the new healthcare law. However, many have argued that it will dramatically increase reporting requirements and place an undue burden on businesses. Congressional task forces and committees plan to review the legislation in 2011 to examine whether the benefits of the expanded rules are worth the additional burdens it will create for taxpayers. If the legislation isn't modified, small businesses will need to create vendor tracking mechanisms and streamline year-end reporting in 2012.

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