Tax Rule Change

The coming tax changes that spells out who must get 1099 forms will affect the vast majority of small businesses. The new rules on 1099 forms, which go into effect in 2012, call for all businesses to file 1099 forms for goods as well as services, if those goods cost over $600.

“It is a tremendous new administrative burden, and it is so senseless,” says Steve Henley, a national tax practice leader at CBIZ MHM, an accounting and financial consultancy.

The theory, of course, is simple: All that paperwork should help close the “tax gap,” the chasm between what Americans owe in taxes and what they actually pay. And this provision is expected to bring in $17 billion over 10 years.

No surprise, the National Federation of Independent Business have called for the provision’s repeal. During the debate over the recently enacted small-business lending bill, efforts to get the 1099 reporting requirements repealed failed, though it seems likely that they’ll be modified in some way before 2012.

Already, Internal Revenue Service Commissioner Douglas Shulman has said that the agency will exempt transactions done with credit or debit cards. (A separate law that goes into effect in 2011 requires card processors to file reports to the IRS.)

If the rule survives its challenges, be sure that you have the legal name, address and taxpayer identification number of each of your vendors on file. If not, you’ll want to take some time next year to send Form W-9s out to all of them.