A personal note: I am very anti-politics. This post is to inform. Please: no political rhetoric or rants in the comment section.
As often happens when laws get made in Washington DC, there are additional hidden laws that get swept into the changes. Often, these changes have little to do with the overriding law. It’s the nature of the beast in the give and take that happens when decisions are made in the United States. And, unfortunately, there are some tax laws that were included within the Health Care Law that will affect all businesses.
The one that really stood out to me is part of Section 9006 of the Health Care Bill. It stood out to me because I think it is going to present a huge operational shift for small businesses.
Get ready… folks… there’s going to be massive paperwork!
Beginning in 2012, the IRS will require that you issue 1099 forms to all individuals or businesses from whom you buy more than $600 of services or goods in a year. (Yes – I said ALL businesses that you buy more than $600 of ANYTHING.)
Currently, the IRS requires that you issue a 1099 to any contractor that provides you with more than $600 of services in a year. (You can read more about “what makes a person a contractor” in my post yesterday.) This usually applies to anyone that you’ve hired to do contract or freelance work for your business. It can include weekend assistants, graphic designers, consultants, and so on.
In 2012, you will have to provide 1099s to the following:
- Bought $892 in office supplies at Staples? Yep, send them a 1099
- Bought $2890 in paper inventory from XYZ spplier? Yep, send them a 1099
- Bought $8902 in flower inventory from ABC wholesaler? Yep, send them a 1099
- Bought a $2000 computer from Apple? Yep, send them a 1099
(The list goes ON! Oh my sweeeeeeeettttt bejeeezus!) In each of these examples you will have to consider the total amount purchased in one year. So, if you have 3 invoices that are each $200 from one vendor that total $600, you will have to issue them a 1099.
The Flip Side…
The flip side is that you’ll be the recipient of these 1099 forms also, so you’ll have to keep them all organized. And, come tax season, you’ll need to ensure everything is reported for.
What does this mean to your business?
Well… it means you better prepare yourself operationally. If you feel a little unorganized or under-informed when it comes to accounting and taxes, then this is the time to get your ducks in a row. (Revisit our Accounting 101 series and hire a good tax accountant.) The 1099 forms are not complicated to complete. But, like anything that takes more than 5 minutes, they are a drain on your time. And, time is one of the biggest commodities in small business. And, when you will be filling out several/many/lots/loads of these each year, you better make sure your accounting procedures are ready to go.
- Here is a great post from CNN that talks more about this tax change: http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/
- Here is the IRS page for 1099 forms: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf (the form 1099-MISC is used for contractors currently)
What are your thoughts?
Note: A special thank you to Chris Randall of Edit 1 Media for bringing this to my attention!