Business owners and others are analyzing the healthcare reform law to see what new adjustments to expect to make the transition smoother. Many people are familiar with the healthcare reform law to require insurance companies to cover children with pre-existing conditions, but a new provision in Section 9006 that is expected to start in 2012 has been given some attention by the media this month.
Use of 1099s Expanded in 2012
Starting in 2012, business owners will see the use of 1099 forms increase as they conduct their work as usual. As of right now, U.S. tax law requires businesses to complete and submit every year a 1099 for contractors paid at least $600 for services. The new 1099 requirement will apply to corporations (non-tax-exempt) in 2012; it had already applied to non-corporate taxpayers.
In 2012, the law will expand 1099 requirements to include corporations and individuals. It also includes a provision that a 1099 must be submitted to the IRS for both services rendered and goods bought costing $600 or more during the year.
There are two ways to look at this new provision and how it will affect businesses and taxes. Either way, this change with 1099s will come with more documentation.
More Documentation, More Compliance
Some people, including an aide in the Senate Finance committee , see this as an opportunity to provide some revenue without raising taxes. It is certainly a way to encourage business owners to keep better and more detailed records of their transactions. This change can help increase revenue as businesses report income and expenses more accurately.
As of right now, small businesses tally up receipts for business expenses and include them on their tax returns. With more documentation, this provision may help cut down on fraudulent business expenses being submitted to the IRS, which will hopefully mean an increase in revenue received.
More Documentations, More Headaches
For some businesses, this could be a burdensome requirement, adding a huge amount of paperwork. Looking at the wording of the new provision, businesses will have to get tax identification numbers from everyone- vendors, independent contractors, and companies to be able to comply. This expansion can include hotel stays and gas station fill-ups, which will need 1099s for each supplier.
How will section 9006 be implemented come tax time? The IRS will release regulations on the new law some time in the next year and we’ll see if any exclusions will be made for business owners.