Submitted by Amy Smith, CPA

With the passage of the Health Care and Education Reconciliation Act of 2010, Congress also implemented a significant change to the reporting requirements for businesses issuing IRS Form 1099s. The former rule indicated that a business needed to issue a 1099 when it paid someone other than a corporation for services costing more than $600 in a calendar year. A common example is an independent contractor who provides consulting services to a company and was paid $1,000. Because of the service aspect, vendors who provided goods to a business were, for the most part, excluded from this requirement, such as paper and supplies providers, telephone companies, advertising companies, etc.

However, under the new law, a company who pays any vendor or person more than $600 for services or goods (besides employees) is now required to issue a 1099 for the total amount paid to the vendor for that calendar year. Currently this law goes into effect starting January 1, 2012. This means your company could now be required to issue a 1099 for printer paper, telephone and internet services, subscriptions, utilities, postage and any other item which cost the company more than $600.

Can you imagine the burden which was just placed on businesses? Can you hear business owners screaming in the background? The record-keeping, data-collecting efforts just skyrocketed, not to mention the additional tonnage of paper to be mailed to the IRS come February 2013. The idea was to help the government track down unreported income. Well, let us wonder if the statute of limitations will be extended from three years to thirteen. Perhaps the IRS will be able to wade through the additional 1099s by then.

It is unclear whether this new law will stick around. Legislation has been introduced to repeal it, but no one knows how long it will take to work its way through Congress. The best way to deal with this uncertainty is to prepare for it. Gather the requisite names, employer identification numbers or Social Security numbers, and addresses starting January 1, 2012. If you are still required to complete 1099s in 2013 for 2012 transactions for everything but the kitchen sink (unless it cost less than $600), at least you will have the data at your fingertips. And, even if the law ends up being repealed, you might learn a few things about your vendors. Were they willing to work with you? Or did they try to withhold the necessary information from you to avoid reporting taxable income on their end? Perhaps the exercise will help you identify those vendors you really want to retain versus those whose time has passed. Whatever the outcome, know that HeimLantz stands by, ready to assist you…and we will provide you with all the necessary information!