2011 tax change for business purchases

15 replies
"Starting in 2011, any vendor or independent contractor payment that aggregates to more than $600 in a year gets a Form 1099-MISC.

In the past, we've only had to give Form 1099s for services and to unincorporated entities. Now everybody gets a Form 1099, corporations included, and for all payments - services AND goods.

If you buy office supplies at Office Depot, better be prepared to give a Form 1099-MISC to them if the aggregate is over $600 in a year."

And the IRS gets a copy!

For more information, see Diane Kennedy's tax blog atDiane Kennedy's USATaxAid Got W-9? How New Health Care Bill Form 1099-MISC Requirement Will Drown You in Paperwork
#2011 #beware #business #change #purchases #tax
  • Profile picture of the author cma01
    I know. It will be just one more step in the process for big corporations, but it is going to be an additional burden for small businesses.

    I've been wondering how this will affect eStores. You really have no way of knowing if your buyer is a business or not, so are you going to have to provide your EIN number to every single purchaser so that they can issue you a 1099?

    And the first part of that process is that the seller has to provide the purchaser with a W-9, so are you going to have to hand that out with every sale?
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  • Profile picture of the author TelZilla
    Yeah, this is just too confusing. Is Office Depot, Walmart, and Sam's Club going to have to start asking customers for their W9 so they can send them a 1099 at years end? Are they going to be able to determine which purchases are for business use -vs- personal use without asking the customer?

    This is typical government micro-management to ensure they scrape every single penny they can out of the taxpayers pockets.

    It's an impossible law to enforce. You'd have to have teams of IRS agents basically living at every store in the US to ensure that the law was followed correctly. Without the customer telling the retailer that the purchase is for business use, there is no way for the retailer to know.

    I've purchased more than $600 in a year from Office Depot...and none of it was for business use.

    Like I said, it's an impossible law to to enforce. But knowing the IRS, they will automatically assume you're guilty and just throw an additional tax liability at you.

    I foresee lots of tax audits in the future.
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  • Profile picture of the author cashcow
    I think it is the opposite from what you guys are thinking.

    It's not Walmart that will have to ask you for a W9 - it's YOU that will have to ask Walmart for one. If you plan to write off more than $600 on business purchases from Walmart (or Staples, or your outsourcer, or WSO fees). Isn't it? Or am I thinking of it backwards?

    Lee
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    • Profile picture of the author Sardent
      Originally Posted by cashcow View Post

      I think it is the opposite from what you guys are thinking.

      It's not Walmart that will have to ask you for a W9 - it's YOU that will have to ask Walmart for one. If you plan to write off more than $600 on business purchases from Walmart (or Staples, or your outsourcer, or WSO fees). Isn't it? Or am I thinking of it backwards?

      Lee
      I would think it would be both.
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      • Profile picture of the author mcmahanusa
        Well, at least that's part of the jobless problem solved.
        Fifty thousand new IRS agents hired to monitor.
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        • Profile picture of the author netmatrix
          I'm stopping all purchases at $599.99 per Vendor.
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  • Profile picture of the author statelizard
    No need to get all worked up about it just yet. They tried to get this measure repealed when they passed the Small Business Act a few weeks ago. Those amendments were defeated in by a slim margin. There were two of them. One of the amendments received a majority vote with 56 voting to get rid of the law, however they needed 60 votes to remove it. The other measure received 46 votes.

    There are currently 4 independent bills floating around Congress seeking to
    1) eliminate this reporting requirement completely
    2) raise the funds from elsewhere (including a tax hike) and remove the need for this 1099 reporting.
    3) repeal the 1099 requirement and use leftover money from the 2009 stimulus to offset the revenues that would be lost by not having this filing requirement in place.
    4) Raise the threshold for 1099 reporting from $600 to $5,000.

    There is also talk of exempting companies who employ less than 25 people.

    In other words there is a lot of movement because the small business community has pushed back pretty hard. Expect this requirement to change within the coming weeks, you know before the November elections when all of the incumbents will be scrambling to save their jobs.
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    • Profile picture of the author JeannieAnderson
      Originally Posted by statelizard View Post

      No need to get all worked up about it just yet. They tried to get this measure repealed when they passed the Small Business Act a few weeks ago. Those amendments were defeated in by a slim margin. There were two of them. One of the amendments received a majority vote with 56 voting to get rid of the law, however they needed 60 votes to remove it. The other measure received 46 votes.

      There are currently 4 independent bills floating around Congress seeking to
      1) eliminate this reporting requirement completely
      2) raise the funds from elsewhere (including a tax hike) and remove the need for this 1099 reporting.
      3) repeal the 1099 requirement and use leftover money from the 2009 stimulus to offset the revenues that would be lost by not having this filing requirement in place.
      4) Raise the threshold for 1099 reporting from $600 to $5,000.

      There is also talk of exempting companies who employ less than 25 people.

      In other words there is a lot of movement because the small business community has pushed back pretty hard. Expect this requirement to change within the coming weeks, you know before the November elections when all of the incumbents will be scrambling to save their jobs.
      I would expect quite a backlash. Thanks for the update.
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  • Profile picture of the author Michael Oksa
    I may not be popular for saying this, but...

    I think this is one of the worst ideas to come along in quite a while.

    However, I blame every single person who under-reports their income or tries to take an extra deduction. I'm always amazed at how many people claim to cheat on their taxes, and even a "little bit" is WRONG.

    Pay what you owe, and not a penny more. In other words, take every deduction you're entitled to, that's what they're there for.

    So, a big, sarcastic "thank you" to every person who has "cheated just a little" on paying taxes.

    Just sayin'

    All the best,
    Michael
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    • Profile picture of the author statelizard
      Originally Posted by Michael Oksa View Post

      However, I blame every single person who under-reports their income or tries to take an extra deduction. I'm always amazed at how many people claim to cheat on their taxes, and even a "little bit" is WRONG.

      Pay what you owe, and not a penny more. In other words, take every deduction you're entitled to, that's what they're there for.
      Couldn't agree more. Pay what you owe, people and businesses who don't are a big part of why the tax code is as screwed up as it is. That being said, the screwed up tax code is also part of the reason people fail to pay what they owe.

      Even if this is overturned - you really need to start treating this as a business folks
      Yep. Anytime you are earning income outside of working for a "boss" you need to be treating it as a business.

      I might be cynical but feel this stupid law wasn't overturned due to the elections; no one wanted to be tagged as business friendly or giving the 'rich' even more tax breaks.
      This I don't so much agree with. I firmly believe that it wasn't overturned because not enough people were talking about the problems it will create for small business. This law has jacksh*t to do with big business. They already employ enough paper pushers and file enough paperwork with the IRS to handle this. For them it is simply a matter of improving efficiency.

      This law impacts small businesses more than any new tax law in some time. Small business employs more Americans than big business. They also tend to have the fewest paper pushers. Whether it's before or after the elections this is going to change. Personally, I'm all for it being there and the threshold being pushed to $5,000 over the course of a year.

      This law has a lot to do with the people in forums like this, but let's not kid ourselves we are the minority. The reason this will get changed has little to do with us and everything to do with the Small Business Association and the National Restaurant Association calling for it to be amended. Restaurants employ more people than any industry in the United States, they have already come out and said that this will lead to them cutting back the workforce because of the additional costs the new law will create. Bottomline: Less people employed = less taxes the government can collect.

      Whether it's changed before or after the elections makes no difference, by the time November rolls around this will be one of the major talking points for small business owners and those employed by small businesses. If those currently holding seats in Congress change it, they will have a better chance of being re-elected. If not, part of the reason they lost their job will be because their opponent will work to change it. One way or another it's going to get done.
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  • Profile picture of the author jacktackett
    I might be cynical but feel this stupid law wasn't overturned due to the elections; no one wanted to be tagged as business friendly or giving the 'rich' even more tax breaks. yea I feel like a big business. The other issue with overturning this is the administration is afraid of a slippery slope - this was part of the giant health care bill - and if they let congress change one part of the bill - they fear congress will start changing other parts of the bill.

    The sheer volumn of paperwork this will cause is finally dawning on our elected officials so I feel it will be mutated in some way if not out right overturned, despite the slippery slope.

    Even if this is overturned - you really need to start treating this as a business folks - because the amount of paperwork will be increasing no matter what - given the situation most states find themselves in they are looking for 'new' sources of income - and state sales taxes and 'fees' are the easiest way to get them.

    --Jack
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  • Profile picture of the author globalpro
    Like Josh is saying, Congress realizes they have created a problem with this being slipped into another bill. They have already openly admitted recognizing the enormous problem it will create and are working to correct it. It happens and the wheels of government turns slow, but I think they will get it right before it's too late.

    Like it was also said, there are too many affected to ignore.

    Thanks,

    John
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  • Profile picture of the author seasoned
    Michael Oksa is right, unfortunately. The IRS wants to stretch things as much as possible. And even though they are likely all tax cheats, they want to make sure nobody else "cheats" on their taxes.

    They STARTED by mostly taking us at our word. THEN they set floors on what had to be reported. Little by little they have been pushing towards this.

    It is ironic that some of the taxes may go towards "green causes" without consideration of all the waste these plans will do.

    OH WELL! JUST TODAY I saw on the news a story about a woman that claims her husband was taken, and possibly killed, by pirates. She claims SHE was shot at. IF TRUE, this would be the 5th recorded time in that area this year. Rather than put signs up about it being dangerous, and providing a CLEAR separation, and ENFORCING the laws of the country, they decided to leave a few nondescript buoys, give a few sporadic notices, and leave all to fend for themselves! Just think of all the WASTE!

    Steve
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  • Profile picture of the author statelizard
    Yeah but this isn't about the IRS, they don't make the tax laws, they only enforce them. This is entirely about the people casting the votes on the law. If Congress passed a "no taxes ever bill" the IRS could try to stretch it as far as they wanted, but the fact of the matter is they wouldn't be able to collect any taxes.

    IRS commissioner Doug Shulman has now received two letters from the ranking member of the House Small Business Committee, Sam Graves of Montana. In each of his letters Graves asked the commissioner how exactly the IRS plans to enforce this new law. The first letter was sent in July, the second letter sent recently. On both accounts Shulman has failed to have an answer. In other words, they have no idea how they are going to be able to enforce it, making a completely useless law that will be much like other laws the IRS attempts to enforce, meaning it will only be enforced at random.

    And therein lies the real problem. Not only do they have no idea how they are going to be able to enforce the new law, but they don't even know what all of the reporting requirements will be yet.

    And just as a side note, as there seems to be some confusion on this issue. This new law does not go into effect in 2011. The new requirements go into effect for payments made after December 31, 2011.

    Refer to Section 9006 on Page 737

    So there is more than a year before this even goes into effect to get everything sorted out.

    As I said in my first post, there isn't a reason to think the sky is falling yet. With all of the discussion about this now, the law will be changed in someway or another. That may mean it's repealed or that the threshold is raised.
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