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Filling Out Tax Forms: More Work for You and Your Accountant

Congress is Creating More Paperwork Jobs

What if you had to keep track of every expenditure so that if you had spent more than $600 with one business, you would complete a tax form in triplicate? You’d have to track those $4 lattes from Starbucks because if you reached $600 for the year, you’d need to get a federal taxpayer ID from the store and then issue a 1099. If you forgot to file the tax form on time and accurately, you would be subject to fines by the IRS. Think of the spreadsheets you’d need and the money you would have to spend to have an accountant to organize and report the information correctly. Happily, most taxpayers do not need to fill out 1099’s.

However, Congress is asking business and landlords to fill out a 1099 —anytime they spend more than $600 with one vendor for the year. Historically, the Form 1099 has most often been used by business to report to the IRS fees that a business pays for independent consultants (since the independent consultant is not an employee, the consultant receives a 1099 instead of the more familiar W-2 for wage earners). The form is completed in triplicate—one for the business, one for the consultant, and one for the IRS. Some businesses already complete thousands of 1099’s each year. Last year, Congress passed two bills to dramatically expand the filing of the Form 1099.

Keep track of latte expenses in case you spend over $600 for the year (or switch to McDonalds)

Form 1099 Tsunami
The first change was included in the 1900 pages of the Health Bill. This 1099 change is to become active January, 2012 and would require businesses, charities, and even local governments to issue 1099’s when more than $600 of goods or services is purchased from any provider, including other corporations, businesses, corner stores, etc. The outrage from business groups was major and even President Obama in the State of the Union address called for its repeal.

Vacation Home 1099’s
The second bill was contained in the Small Business Jobs Act last fall and became effective January 1, 2011. This Jobs Act increases IRS penalties for failure to file 1099’s accurately. Also, the Act expands the requirements for filing 1099’s related to rental income, including owners of vacation or second homes. Thankfully, Congress excluded members of the military who rent out their primary homes on a temporary basis.

New provisions this year means that 1099’s now have to be filed for a person or an unincorporated firm (think, a plumber or painter—don’t forget to get their taxpayer ID) who receive more than $600 during the year. Starting in 2012, the requirement will be expanded to include businesses who receive more than $600 (think SDG&E for the property’s electrical bill).

Previously, only taxpayers who were in the rental business were required to file 1099’s. Remember anyone who has rental income already has to keep track of income and expenses related to the property—what this bill does is to add a triplicate 1099 form on top of the accounting that already has to be done. What Jobs are the 1099 provisions creating? Congress is likely to repeal the 1099 expansion contained in the Health Bill but unlikely to repeal the 1099 expansion in the Small Business Jobs Act. The Paperwork nation is growing—this time in the expansion of the IRS Form 1099—creating new jobs for accountants, bookkeepers, and IRS auditors.

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