The IRS 1099-Misc form has always been used to track payments made from one company to either an individual or another company that are not salary-based. If you hire someone to design a website, it’s a one time payment. If that payment is more than $600, then you issue that person a 1099-Misc form, and send one to the IRS, so that they can accurately claim the income on their income taxes. These forms have been used for independent contractors, but not for businesses or corporations in the past.
Starting with tax year 2012, that is all about to change. Hidden in the Healthcare reform bill are changes to how 1099-Misc forms are used. You will need to report any and all transactions totaling more than $600 for the fiscal year, whether it is to independent contractors, businesses, or even retailers!
If you go to the store to buy a computer for your business that costs more than $600, you will need to issue them a 1099- Misc form! You’ll need the store’s federal ID number to issue it. If you pay more than $600 a year to your cable internet or phone companies, they will also need 1099-Misc forms. Landlords, health insurance, accountants… the list goes on and on. However, if you purchase goods and services over $600 from a vendor with a credit or debit card, you do not have to issue them a 1099. If you pay with check, cash, or cash equivalents, you will have to issue them a 1099.
The new law for 1099-Misc extends extension 6041 of the Internal Revenue Code, which is the section that requires business owners to report income paid (non-salary) over $600 in a year, and changes it from having to send 1099-Misc forms to individuals, to any business or individual:
“Section 6041 of the Internal Revenue Code provides that all persons engaged in a trade or business who make a payment in the course of such trade or business to another person of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $600 or more in any taxable year shall render a true and accurate return setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.Section 1.6041-1(a)(1)(i) of the Income Tax Regulations provides that the payments required to be reported under section 6041 include the following: (1) salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more; and (2) interest, rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more. The return of information required by section 1.6041-1(a)(1)(i) must be made on Form 1099. See section 1.6041-1(a)(2).”
If you thought filing your business taxes was a nightmare before, just wait until you deal with this nightmare of paperwork! For small businesses without accounting departments, this is going to be a time consuming task. While the changes are being initiated to increase tax revenues for the government, there’s a good chance that it won’t have much effect. If you consider the increased need for professional tax services that a change like this will cause; and the fact that tax services are eligible business expenses and are deducted at tax time – it seems that the change will result in more paperwork but not much more in tax revenues for the government.