Thursday, October 21, 2010

Nightmare Government Bookeeping Rules Coming for Even the Tiniest of Businesses

How insane is the new rule on 1099 filings? It will go way beyond the tracking of those who buy gold coins. If you buy your employees a pizza once a week, that costs $20, you will have to provide your local pizzeria a 1099 form, since the annual amount of your purchase will be over $600, says Reuters.

The new rule, which was tucked in, of all things, the Obamacare bill, is truly staggering in its dimensions, in the record keeping that will be required for even the tiniest of businesses and the tracking capabilities of the information that will be provided to the government by complying with this regulation.

Here's more from Reuters on the horrors of the regulation:

 The new rules on 1099 forms, which were attached to the health care bill and are set to go into effect in 2012, call for all businesses, no matter how small, to file 1099 forms for goods as well as for services. That sounds like a technicality, but it’s got small business up in arms.

Here’s why it matters, and what you need to know.

The new rule requires all business to file 1099 forms for goods as well as services, if those goods cost over $600 annually (the current threshold). It also gets rid of the distinction between corporations, which previously did not need to receive 1099s, and unincorporated entities, which did. The rule is slated to go into effect in 2012.

It means that you’d better be ready to track your spending by vendor, and have an easy way of tallying up whether that spending totals more than $600 per year. A business that spends $20 a week on pizza for its employees, for example, would spend a total of $1,040 a yea r— and would need to file a 1099 form to that local pizzeria.

Who will it affect?

It will affect all businesses, including sole proprietors, consultants, self-employed people and freelancers, who are considered businesses for tax purposes, but may not think of themselves that way. It also will apply to charities and other tax-exempt organizations. The National Taxpayer Advocate, based on Internal Revenue Service data, figures that it will affect 26 million sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farms, 1 million charities and other tax-exempt organizations, and likely more than 100,000 federal, state and local government entities. All told, that’s more than 38 million taxpayers and taxpaying entities...As with most things tax, the complications are in the details, and the recordkeeping complexities. For example, how will you track that $600, if you spend it at multiple locations of the same business? What if some payments are made by check and others by credit card to the same vendor? What about returns? Will a business be required to send 1099 forms to its electricity provider or to its landlord? Get into the thorny details, and the questions — largely unanswered — seem endless. For sole proprietors, who use Social Security numbers for tax purposes, the new rule also raises the potential for identity theft, especially if that number becomes public through printing on receipts, according to the National Taxpayer Advocate. As Steve Henley, a national practice leader at financial consultancy CBIZ MHM, says: “It is a tremendous new administrative burden, and it is so senseless.”

Are there penalties for messing up?

Yes. A business can be fined $50 for every 1099 it fails to report, and that amount can rise to $100 if the failure to file was considered “intentional.” Also, businesses would be required to withhold taxes at a rate of 28% from vendors who fail to supply their taxpayer identification numbers...

If you’re running a start-up or one-person operation that doesn’t already have a separate business credit card, get one. To comply with the rule, you’ll need to be sure that you have the legal name, address and taxpayer identification of each of your vendors on file. If you don’t, you’ll want to take some time in 2011 to send Form W-9s out to all of them in order to gather this information.


  1. Well this is going to blow up in their faces.
    Small business will just move to cash and
    barter and not report anything, problem solved..
    All small businesses with have (2) prices,
    reporting and non-reporting. If you report a
    1099 on the Pizza the price is $25 to cover the
    their tax on reported income and a higher
    reported deduction for you. The cash price will
    be $20 and nobody reports the transaction. This
    happens today, it will be standard after 2012..

  2. They're nuts. I can barely follow the tax law now!!!!

  3. Agree with Anonymous #1: Business will be forced into the black market and cash business will be preferred. I like to pay for things in cash that way the business owner has more options...

  4. Keep in mind the government is saying they'll exempt the $600+ 1099's as long as people use credit cards. To me, this means they just want to track funds more easily.

    I think the reason why is that this is just a step to try to get to a VAT, which would require an even larger amount of paper pushing. If it's all electronic, the taxes are much easier to assess, extract, and prosecute.

    This is so stupid. Bottom line, some people will go straight cash and barter off the books, and some people will be buried under paperwork instead of producing goods and services. This will do nothing but harm small businesses, especially single person contractors.

    This is just another scam to pay for all the failed and stupid programs the government has put in place for the past decade. Inflate, tax, rinse, lather, repeat.

  5. This is truly a horrendous development.

  6. Come on Americans enough is enough. This ONLY works if you comply with it! Don't file, don't report a darn thing. Tell your vendors you will only take cash or money orders.

    38 million businesses translates into roughly 100 million citizens. Put us all in jail and pay that bill FEDERAL RESERVE/IRS. These are not government agencies... they are privately owned. The FED prints money and charges the US Gooberment interest for it's printing press and logo. The IRS is the private security firm used by the PRIVATE FED BANK to collect that interest! By having pictures of Federal Judges having sex with children or animals the judges act as criminals and send non-fee paying Americans to jail or steal their property. I am done... stand with me and be a REAL AMERICAN instead of talking out the side of your mouth at a TEA PARTY rally! Don't pay, don't pay, don't pay.

  7. Accountants will clean up since everyone will now be keeping two sets of books.

  8. The sky is not falling:

    1. It’s a routine function of whatever accounting software you own to identify vendors paid >$600 per annum
    2. Current IRS compliance enforcement in this arena is next to nil now. The IRS operates using the fundamentally sound approach of cost-benefit when determining audit targets. Since there would be no red flags for non-compliance (how would they know?), there would be no basis for marshalling it’s human resources to pursue compliance and penalty restitution.
    3. As for the Anonymous example of a $25 pizza for $20 dollars, that only works if your marginal tax rate is 20% or less. More than that and you want the expense deduction on your tax return.

  9. Aw yes, gee, you see, its just a routine.

    It's not about extracting every last tax dollar and drop of blood, and thereby further enriching all politicians, tax lawyers and tax preparation companies.

    It's not about tracking the few remaining financial transactions (e.g., purchase and sale of precious metals) that may remain outside the purview of some federal filing, report or registration.

    No, you see, its just a routine function to collect a few more taxes, so now every small business can relearn and respend money they already spent and no longer have on new software to track and fink on every vendor they do business with.

    Prior anon, please go back to the hole you came from. Nothing the IRS does is "fundamentally sound." They are crooks and bullies writ large.

  10. OK, the sky is falling. My bad.

    I guess providing assuaging info re: current acctg software abilities and IRS method for determination of a potential audit target are just silly little details that really, really stand in the way of good drama.

    OK. Be afraid. Be very, very afraid.

    Crawl back into your hole, cuddle up with the Quickbooks manual to “relearn software”.

    Is that what you tell your work colleagues every time you learn a new command in excel? That you’ve “relearned” excel?

    That whole knowledge is power thing? Fuggedaboudit.

    Don’t fall off your high heels, Mary!

  11. Who was behind this addition to the bill? Who benefits?

    The CPA industry?

  12. Well, Timmy "Turbo Tax" Geithner won't adhere to the rules ....why should we.
    Banks didn't record the mortgages as per the rules...why should we.
    BP didn't follow the rules....why should we.
    Politicos don't follow the rules...why should we.
    Law Officers don't follow rules...why should we.
    Judges for the CTFC don't follow the rules..Why should we...
    This list could go on & on.....the little guy is the only one following the rules....WHY SHOULD WE.

  13. Well, this is just great! Please Mr.Government, give me more paper work to do, for you. After all, as a small business owner, I have all the time in the world, to follow more regulations, even stupid ones.

    They want paper...then every business ought to give it to them....make sure you send 10 times the 1099s required.

    For me.....Who is John Galt?

  14. Government in general benefits with increased revenue and increased control

  15. A cashless society is the pipe dream of the bankers. No cash, no run on the banks unless we discover a way of turning digital 0s and 1s into something physical.

    Just maybe in the future they don't intend to have even fiat paper around for people to run to. Hyperinflation due to Ben and his helicopters might this way come.

    In the interim, food stamp cards and debit cards with a brand new currency for the unlucky who don't protect themselves from currency debasement and other destructive policies.

  16. I am a small business owner who is so incredibly sick of our tyrannical gov't that I refuse to comply with this law, it will never happen. This is where I will make my stand. It already costs me thousands and thousands of dollars to comply with their communist rules and as an American Citizen, I will no longer play the game of unconstitutional big government. Eff the government. They are a band of criminals on both sides of the aisle and they must be stopped. I can't believe that "we the people" have allowed our government to be hijacked by a band of criminals practicing mob rule. The government must go. Please vote all incumbents out of office, whether they have an r or a d next to their name. Today is the day that I will start looking for another country to live in. I have had enough of polititcal correctness and tyranny while the mob steals the wealth of our nation using their bullshit fake inflationary money scam and turns us into economic slaves.

  17. I second the above.

  18. Thank you anonymous, welcome to the club.

    "...the Federal Judiciary; an irresponsible body (for impeachment is scarcely a scarecrow), working like gravity by night and by day, gaining a little today and a little tomorrow, and advancing its noiseless step like a thief, over the field of jurisdiction, until all shall be usurped from the States, and the government of all be consolidated into one. When all government... in little as in great things, shall be drawn to Washington as the centre of all power, it will render powerless the checks provided of one government on another and will become as venal and oppressive as the government from which we separated. (1821) Thomas Jefferson

  19. You will not barter or go to cash to avoid the NWO.

    Cash will disappear.

    They will force you to accept their mark to buy or sell in the future at gunpoint.

    If you refuse, you will be beheaded.

  20. Being a CPA/Partner at a four person CPA Firm, this new rule will be an absolute disaster. I will BET you that the government(IRS) has no idea how to enforce such a volume of 1099s. You need to realize that they will have to hire agents just to police this issue. Alternatively, the IRS will ignore it, or let it be a secondary issue. The IRS volume of 1099s will go up by a factor of 50 to 100 i would imagine.

    Also, I do not think that using a credit card gets you out of filing. I think that is false. Think about it. The IRS is trying to gather information. They DO NOT have your credit card information on file, or access to it without an investigation. They would have to cross-reference all of the businesses in america that use credit card. It is not going to happen. The IRS can't even match partnership returns to the partner. How the hell are they going to match all those credit card transactions to a specific business.

    This bill is going to LIMIT competition and favor the established businesses. Sorry little guy who is trying to start out, you are screwed.

    I fear the administrative nightmare that is heading to MY practice if this pig is not reversed.

  21. this will kill internet buying....I know I have purchased many things from a single vendor over totaling over $600

    So if you spend $600 a year in just shipping costs with UPS or Fedex, you'll need a 1099 for each of them....

    they are totally brainless in washington arent they!

  22. Actually, if you would actually READ THE LAW FOR YOURSELF, --you would find that the form 1099 is generally NOT to be used on US CITIZENS, --but only on certain persons named in the code as LIABLE --all FOREIGNERS from the list I read in the LAW ITSELF. THose of you with gray elephants: WHY are you paying the BLUE-ELEPHANT tax? You accountants must be STUPID (or maybe at $200/hr -- they just like charging you for all that unnecessary paperwork...)!

  23. As a retired IRS agent, I say the IRS is an inept, narrowly focused and compartmentalized agency incapable of getting out of its own way. The IRS's short attention span prevents it from consistently applying the rule; and its marginal management team will make many "comments" about enforcing this new rule, but has no effective or efficient means to do so. All the blow-hard comments on this site are irrelevent. Most businesses in this country will comply, be overburdened, and complain about the rule, BUT will not risk being the "test case" for non-compliance with this inane rule. If you want to stop this madness, vote on November 2 to replace the idiots who passed this rule and throughout 2011 call your congressperson once a week and annoy the crap out of them by insisting the rule be repealed. Because if it goes into effect in 2012, its over and done.