One thing we as small business people can count on is that, no matter what year it is, there will be changes in the tax law for that year. And this year is no different, only it’s worse. Much worse.
Legislators play with the tax code vis-à-vis small business for all sorts of reasons, but mainly it’s because they want:
1. To ease our tax burden, so we can create more jobs, or;
2. To increase our tax burden, because they need the revenue.
Whatever the case, and whatever the prevailing political wind, the fact is that we are the ones who often get blown around. And keeping track of what direction the wind is blowing is no small feat; after all, most small businesses do not have in-house counsel and CPAs ready and able to decipher the flavor-of-the-month tax changes.
But the good news is that your pal Steve is here to make it easier for you.
Let’s start with the simple stuff:
The basic rule, as you likely know, is that you need to report to the IRS all payments of $600 or more made to non-employees. But since this is the government we are talking about, it quickly gets a lot more complicated. Indeed, there are over 100 potential 1099-related transactions and scores of different 1099 forms. If you don’t quite get it right and report incorrectly? Too bad, and watch out.
Here is the big change you need to know about this year:
According to Greatland Corporation, a leading provider of W-2 and 1099 products for business (and a company I do some work with), last year’s Small Business Jobs Act is going to “increase 1099 and W-2 reporting penalties across the board.” Most of the fines are going to double or triple.
The changes in the fines go from the mundane to the extreme: For failure to file accurate information, the fine doubles, from $50 to $100 per return. But get this: For failure to file altogether, the maximum fine for small businesses has increased fivefold, from $100,000 to $500,000.
So Big Brother is not only watching, he is in a bad mood.
And that’s just for starters. Consider the sheer number of 1099s you potentially will have to file starting in 2012 as a result of the new health care law. The new law states that businesses must begin 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.” (Via CNN.)
Yes, you heard that right. You better keep careful track of every person and business to whom you pay more than $600 this year, and then issue them a 1099 next year, or those dreaded fines will not just be something you read about on the OPEN Forum.
CNN puts it this way: “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.”
If there is any good news in all of this, it is that this portion of the law might be reformed. Why? Because it is truly an onerous requirement to put on, what both political parties call, “the backbone of the American economy.”
In the meantime, here are a few guidelines to make sure you handle your 1099s properly this year:
- Figure out whom you paid more than $600.
- Make sure you have their current and correct address and social security number.
- Learn what your specific filing requirements are and which 1099s you need to file. If you need help figuring this out, SCORE is always a valuable resource, as is the IRS and, also, the aforementioned Greatland.
- As mentioned, be sure to keep meticulous records this year as you may be filing a lot of 1099s next year.
The key takeaway is that it is important to be extra thorough and meticulous with your record-keeping this year, so you won’t face any fines next year.
Image credit: agrilifetoday