On February 1, 2011 the Senate approved an amendment to repeal the expanded 1099 information reporting requirements that were introduced with the passage of the health care reform law. The U.S. House of Representatives will vote as early as March to eliminate the tax-reporting requirement.
As a business owner, my primary focus is on taking care of my customers and making sure I serve them. In this economy, business owners are already faced with extra burdens. We have to make sure we are servicing our clients 150%; we have to really think twice before increasing rent and watch our bottom line. This responsibility alone is a handful. Imagine having to deal with the new 1099 filing requirements in addition to the other items we need to track. The new law would have required me to track all my vendors that I have paid more than $600 to. I would then need to submit to both the vendor and the Internal Revenue Service form 1099. The headache gets much bigger as I would be required to hunt down vendors for their tax ID numbers. Additionally, I will have to give my tax ID numbers to my clients and tenants as well. This would not only force me to receive hundreds of 1099 forms but to also be concerned with identity theft. Sounds pretty ridiculous!
Well, thank goodness business owners did not sit back and take this lightly. The upheaval by business owners and individuals over this new 1099 law seems to have stirred the pot. Business owners wrote letters to their congressmen and their biggest complaint was that instead of focusing on operating their businesses, now they have to fill out paperwork for the IRS. This big upheaval was because the IRS wants taxpayers to help police the system. The main reason for the policing was to make sure businesses and individuals are not under-reporting revenue. The IRS was very concerned with “under the table” payments or money that passed hands without the IRS knowing about it; the new law was the hope of reducing that problem.
The Senate quickly realized they had to do something because business owners were not going away. They are now patting themselves on the back by saying they heard small businesses owners loud and clear. The Senate overwhelmingly voted to eliminate these expanded 1099 filing requirements and their hope is now that small businesses can focus on the critical work of growing their business and creating jobs.
Our hope is that the House of Representatives will vote to appeal this law as well and then we would be on our way to getting rid of this headache. Perhaps the new 1099 filing requirement will be eliminated, but don’t get too excited because the IRS has a mission to make taxpayers report all their income. It’s almost certain that new measures will be implemented in the very near future.
Remember, the pending appeal only affects the expanded filing requirements for form 1099 miscellaneous income. It does nothing to eliminate the new form 1099-K. As previously mentioned, the IRS wants to eliminate businesses under-reporting their income. As a result, form 1099-K was introduced in the first time home buyer credit law that was passed in 2008. This new form 1099-K has its own share of issues we must conquer.
Form 1099-K ensures that businesses who do not declare all of the income they receive from credit cards, debit cards, gift cards and services like Authorize.net or PayPal will no longer be able to hide that income from the IRS. Merchant card companies are required to report to the IRS the amount of money they send to business owners as a result of accepting merchant payments. The gross amount of payments received from a third-party network will be recorded on the new IRS form 1099-K; any payments of $600 or more will be reported. This now means that the IRS will already have a record of how much money the business owner received from Visa, MasterCard as well as other third party merchant accounts.
With all these changes happening, I always coach my clients on the importance of record keeping. I have been in the tax industry for over 20 years and represented taxpayers in thousands of audits. Today more than ever, it is important to keep solid and accurate records. The IRS is mandating new rules every day. The key is to make sure you know how much money you have received from these third party vendors. We certainly do not want to rely on them to get it correct. Along those same lines, you want to make sure you are keeping all of your receipts with the cancelled check or credit card slip. Please keep your tax records handy! The IRS has hired thousands of new auditors and they are not playing. The government is in need of revenue and they are going to get it from taxpayers.
We definitely have to stay tuned to all the tax news because changes are on the way. The new 1099 requirements are just an appetizer, but dinner is yet to be served! Keep in mind my top 5 tips:
Karla’s 5 Tips
- Always consult with tax experts before making a huge investment, such as purchasing a rental home.
- Record keeping is essential especially when it comes to your business and properties.
- Keep your financials current by constantly update your bookkeeping.
- Do not represent yourself in an audit. Make sure to have a tax expert represent you.
- Tax planning is necessary for investors and business owners.