Wednesday, May 12, 2010

January: the US's new month for tax hell

Are you ready for this, my fellow writers and artists?

Neil deMause reports for CNN
An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.

Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.

Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.

But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

The bill makes two key changes to 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.

Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

"It's a pretty heavy administrative burden," particularly for small businesses without large in-house accounting staffs, says Bill Rys, tax counsel for the National Federation of Independent Businesses.
The article explains that this is an ingenious new means for Congress to raise revenue without raising taxes. And of course that makes sense, since in case you don't realize it, purchasing 1099s from the government is not cheap. We've been sending them out to our authors and artists every January. But now it looks like we'll have to be sending them out to our printers, everyone we buy supplies from, virtually everyone we do business with. (Does that include the USPS, I wonder? I guess it must.) Pretty weird, hunh? And for all the writers reading this: if you're claiming your travel expenses to WisCon, you'll have to send the Madison Concourse and the airline you fly on a 1099. A flood of paperwork doesn't big to describe what this means. The January flow of mail will obviously be a lot heavier than the Christmas blitz!

If only it were only that bad. But the CNN article notes this:
The notion of mailing a tax form to Costco or Staples each year to document purchases may seem absurd to small business owners, but that's not the worst of it, tax experts say.

Marianne Couch, a principal with the Cokala Tax Group in Michigan and former chair of a citizen advisory group to the IRS on small business and self-employed tax issues, thinks the bigger headache will be data collection: gathering names and taxpayer identification numbers for every payee and vendor that you do business with.
So that means calling up every one of those stores and corporations and trying to get their vendor IDs off them. I guess smart people will do this in July rather than waiting until January, when thousands of people will be calling the same corporation numbers at the same time....

God, I can hardly wait. Between Aqueduct's paperwork and my own, I can just imagine what the mood will be like around here. And procrastinators will obviously suffer the most.

ETA: This goes in effect in 2012.


Eleanor said...

Fairly awful. I am trying to figure out the reason for this.

Eleanor said...
This comment has been removed by the author.
Eleanor said...

I read the article, and I now see the reason for all those 1099s. My writing expenses are modest. Even Wiscon is not over $600. The only serious problem I can see would be when I buy a new Mac or if I go to a con a long distance from home. None the less, I will talk to my tax person. Thanks for posting this.