The 1099 Shakedown

July 21, 2010 at 3:50 pm Leave a comment

It seems that with each passing day another new tax, carefully buried in the healthcare reform bill, is being exposed.   This time it is in Section 9006 and comprises just a few lines in the 2,409 page document, yet it has the potential to turn the lives of business owners upside down.  

Beginning in 2012 there is a mandate that all companies will have to issue 1099 tax forms not just for contract workers, but to any individual or corporation from which they are buying more than $600 dollars in goods or services in a tax year.

So what does this mean for the average small business?  In a nutshell, increased costs for accounting services which in turn will be passed along to customers in the form of higher prices.   It also means millions more tax forms which will require more government bureaucrats to sift through the paperwork, paid for with higher taxes.   How’s it sounding so far? 

Currently, 1099’s are only used to document income from individual workers other than wages and salaries.   Typically they are used to report income to independent contractors, who will coincidentally become more frequently used as healthcare reform forces companies to lay off traditional employees. 

Under the new rules, if a business purchases a new computer from Best Buy, they will have to send a 1099.   If a beautician purchases shampoo from a supplier, they will have to send a 1099.   If an entrepreneur flies or rents cars, they will have to send 1099’s.   If lunch is catered for employees, a 1099 will have to be issued.   If you weekly lunches at Taco Bell, you will have to send them a 1099.

As if this isn’t enough to force a going out of business sale, 1099’s will have to be issued to corporations which are currently exempt.  

The rationale, which has absolutely nothing to do with healthcare, is that this tool can be used to bring more income into the federal coffers.   According to the Democratic aide for the Senate Finance Committee who conjured up this idea, “information reporting improves tax compliance without raising taxes on small businesses.”  Perhaps, but any tax savings is more than offset by the manpower needed to maintain compliance which will come at the expense of the American consumer.

It’s not that this tax wasn’t disclosed, it simply wasn’t investigated by the mainstream media.   As early as last October, SMC Business Council warned of this impending tax being buried in the mountains of red tape being debated in Congress.   The Cato Institute has called it a “costly, anti-business nightmare” and Dan Lungren, R-Calif., introduced legislation last week that would repeal this ridiculous new mandate.  

Complicating matters will be compliance.   Just how are small business owners supposed to collect names and tax identification numbers for everyone with whom they do business?  The reality is that this mandate will create more scofflaws than the 55 m.p.h. speed limit.   But then again, would you expect anything else from an administration and a Congress doing everything in their power to prolong the recession? 

____________

Chris Tidball is the author of Kicked to the Curb who provides businesses with innovative solutions to dramatically improve productivity and profitability while reducing costs.  Learn more at www.christidball.com or email chris@christidball.com.

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Chris Tidball is a claims and revenue management consultant and author of the "20 Essential Rules" series of self and organizational improvement books. You can ask him a question at chris@christidball.com

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