New Health Care Law Calls For Expanding Form 1099

Personal Tax

By: Gardiner Thomsen CPAs |  email

Hidden within the 2,409-page document known as the Health Care Reform Law, is a provision intended to close the “tax gap,” the estimated $300 billion difference between tax revenue that is collected by the government and that which is not, presumably because of unreported business income. In a nutshell, the government intends to crack down on business income reporting in order to help pay for health care reform, and it will have an eagle’s eye on small businesses. Beginning on January 1, 2012, this provision requires any U.S. business, large or small, public or private, to issue a Form 1099 to any entity to which it pays more than $600 for goods and services rendered for business purposes within it’s fiscal year. For example, the IRS will expect a lone freelancer to obtain tax information from a large corporation such as Wal-Mart and send the company a Form 1099 because he/she purchased more than $600 in office supplies during the year. While these increased reporting requirements may improve tax compliance, they undoubtedly increase the cost of compliance. This is a major concern for smaller businesses because that cost can be largely disproportionate to the tax-saving incentives also found in the Health Care Law. These new reporting requirements are sure to bring on massive amounts of paperwork and issues in information security, but businesses have ample time to prepare. Enforcement begins for fiscal years beginning on or after January 1, 2012. Here are some of the things small business owners should keep in mind before they implement new reporting procedures:
  • Obtain a TIN (tax identification number) from any entity to which you may have to submit a Form 1099. It might be good practice to obtain a TIN from anyone you exchange money with as audit compliance may require that information for every sale regardless of amount.
  • Look into obtaining software that can help you keep better track of your transactions.
  • Consider consolidating purchases and negotiating volume prices with suppliers in an effort to cut down the number of Forms 1099 that you will have to send out.
  • Adapt your business to qualify for new tax credits that could help offset the cost of additional reporting requirements, or at least help make the increasing cost of health insurance more affordable.
If you have any questions about how your business can best maneuver through the compliance and reporting obstacles imposed by the new Health Care Law, please call us. Gardiner Thomsen can help analyze your business situation, implement reporting procedures and navigate the sea of tax-saving incentives to make sure you have a smooth transition.
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