Big Tax Headaches for the Gurus (and everyone else)

Or maybe they will now be sold in 4 parts... $497 per part

This is why companies are leaving this country. Perhaps it's time to open up an office in Malaysia.

You need to be careful about this tactic too. While I'm not a lawyer like you Brian, there was a case recently here where a man made several deposits under the reporting cap (can't remember if the cap is 5K or 10K - but he made multiple deposits just under the cap).

Now he had claimed and paid income tax on all the money he had - and of course he proved he had received the money legally. All of which the prosecutors admitted in court. But the man was still successfully prosecuted for evading the law.

It was covered in the News and Observer here in Raleigh NC - the man involved was a lawyer who collected his fees over several years in cash, but became concerned he'd be robbed by keeping it all at home - so he started depositing it.

What is our country coming too?

--Jack

Come to Australia, no BS paperwork laws like this and the country isn't going bankrupt either unlike the rest of the world.

Chris

After reading this thread I am reminded how fortunate I am to be living in Canada. We have rules too but they're much more reasonable!

This has been debated here, before. One tax expert said to hold on to your horses and that the law is intended just to be more clear about independent contractors and anyone who generates money for your in your business. If they generate money for you and you pay them over $600, then you file a 1099 for them.

Now, I know some are saying if it's you make any business purchase over $600 you need to file a 1099 for that business you bought from because it appears that's the way the law is written.

Also, your joke makes no sense about making products $599 instead of $1997. (edit: unless you're talking about IM products, which it looks like you are, that you don't want to get a bunch of 1099s from buyers, then, I see. But not for non-IM products). Also, if an affiliate makes $1000 with one sale or $1000 with 3 sales, it doesn't matter, you still have to file a 1099 for them. Of course you have always had to file 1099 for affiliates, that hasn't really changed.

The best way for threads like this is for those with expertise to weigh in and give their expert advice. That's what I'd like to hear. Otherwise, it's just a bunch of flaming the IRS, which can be granted but doesn't really help us see through the mud, and alarmist statements. I don't know either way about this law, but I would like to hear more from those who truly know what they're talking about.

Ok, if you're THAT worried about it, the IRS is seeking public comments on the issue:

Internal Revenue Bulletin - July 19, 2010 - Notice 2010-51

You have until September 29 to make your thoughts known.

Jack and others - you're right about multiple payments. The threshhold for reporting is an amount paid to someone during the year. Having a bunch of $500 payments does not skirt the law.

Regarding the IRS request for opinions - no question there is, and will be, attempted backpeddling because this is all so absurd.

But here is the problem (without going back to doublecheck the Healthcare Reform Law), the new form reporting requirement is statutory. Not regulatory. If it was regulatory then the IRS could simply say stop sending us all these worthless 1099s, we only want _________. Statutory changes have to be made by Congress.

Of course, if someone wanted to be enterprising about this, there's a whole new business opportunity to do this for everyone who just wants to work from home in their underwear.

Personally, I don't see this as that big of a burden even if it goes into effect without modification, to be honest. Let's break this down (I'm going to purposely go a little simplistic simply for the sake of discussion):

- You will need to keep track of all of your business expenses (something you should be doing anyway);

- You will have to file a 1099 for anyone you pay business expenses of $600 or more during the year;

- You will have to keep track of all of your business income (something you should be doing anyway);

- You will receive a 1099 from anyone who pays YOU $600 or more during the year.

Ok, so in the end it boils down to this...

The record keeping is something you should be already doing. If you're not, then you're just taking unsanctioned shortcuts you shouldn't be taking anyhow. Come tax time, you will be required to send 1099's and you will receive them. By the time this comes into effect, there's no doubt in my mind that you will be able to send these 1099 forms electronically, and there will be no postage requirements.

No doubt there will be a service provider who will handle these for you, for a small fee.

In the end, it seems to me that this is a just some more paperwork that, when the rubber meets the road, shouldn't add more than a few hours to my tax preparation. Again, knowing where your money goes and where it comes from is something you ALREADY should be doing, and are required to do by law.

Personally, I use my AMEX for almost every single business-related expense and at the end of the year AMEX provides me a complete breakdown of every dime I spent, sorted out by name.

I hate living where it snows (I used to live in Minnesota). But it might be time to head for Canada.

I would like to add that I do feel this will be modified. Big business owns the government and I really don't see this as something "big business" will want to partake in. Look to see this go through some changes before the December 2011 deadline.

What ever happened to "The Paperwork Reduction Act"? This obviously violates that big time.

It is amazing to me how politicians, especially liberal politicians, can put stupid obstacles in the way of business. They just can't figure it out that the harder you make it for business to make a profit, the less jobs you create. And they wonder why the job growth is dismal. When are they going to wise up?

This presumes that the IRS has a way of figuring out that each individual IM'er actually paid more than $600 to any one specific other IM'er. When we fill out our Schedule C's, all purchases are lumped into one sum and are not itemized. (Of course, this could change, but for now that's the case.)

How the heck are they going to track down each and every person engaged in IM and check where the money went? They can't possibly audit every one of us.

And that presupposes that we keep "accurate" records of each payee. What's to stop someone from designating a different payee when the amount nears $575 just so they don't have to deal with that kind of paperwork?

It reminds me of the way jobs are set up so you are forced to lie about being sick when all you wanted was a sick day. You're not allowed to simply ask for a sick day. You are required to call in "sick" that day instead of being allowed to be honest.

In this case, I suspect a good portion of the IM industry (and probably others) will simply not deal with this garbage and huge waste of time by keeping appropriately edited records. They'll still show the total amount spent on each category, but no one individual (according to the records) will get more than $600.

As a seller, it will be a little more interesting coming up with ways to get around that amount or the reporting requirements.

Really, the IRS is just creating another reason to be creative in filing taxes and getting around this ridiculous time waster.

As Steven said, "Idiots".

But as a payor, if you don't file a 1099, they have nothing to match it up to. I certainly don't give my taxpayer ID to whoever I'm buying from. Nor do I collect it when I'm purchasing the latest WSO. And I can't see the IRS enforcing this for purchases like that.

Of course, as you say, it will likely be modified over the next year. The nightmare of actually making this work and enforcing it is going to become extremely clear - not to mention the hordes of people protesting when they find out more of the details.

I think the US should get rid of all the different sales taxes and introduce a national 10% GST. This will simplify business, make many things cheaper, and every receipt/invoice automatically becomes a 'tax invoice'. No 1099's needed.

It works quite well down here in Oz.


Andrew

And they complain about all the jobs going overseas. Duh!! Pretty soon, the only jobs in the USA will be working for the government. Not sure where the tax revenue will come from though.

The US government is controlled by a socialist lawyer president, socialist people don't care about business and progress, lawyer love paperwork and trouble, so you have a socialist and lawyer, what can be worst than that. Also thy are people who know nothing about how economics works, all should read to Milton Friedman and Ayn Rand.

Do you know what party rules the worst Europeans economies countries, Yes the socialist party from Greek and Spain. Recently Iceland played with bankruptcy, they had socialist president too.

In the other side, Singapore is a Neo Liberal dictatorial country and they are great.
South Korea, they fight hard to any socialist rules, and they are great now.

This is serious stuff guys.

As much as I get tired of the endless initiatives that have made a hash of California, it would be nice to be able to vote on a national 10% tax. I suspect it would pass by a landslide.