Plenty of Paperwork: Expanded 1099 Reporting

The Patient Protection and Affordable Care Act signed into law in March 2010 isn’t only about health care. One provision in the bill covers expanded reporting for payments made in the course of business.

In order to be prepared for the changes, businesses should to take some new steps to prepare for the expanded 1099 reporting that will be instituted in 2012. 

For 2012, businesses will be required to file a 1099-MISC form for all payments (both goods and services) aggregating over $600 or more in a calendar year. In the past, corporations were exempted from these information-reporting rules. Therefore, corporations have not previously needed to accumulate these records, and stiff penalties for failing to comply will now apply.

The act also expanded the information-reporting requirements to include business payments for property. Under the new law, property owners who receive rental income will be required to issue a 1099 to service providers (such as repairmen). For example, not only will business owners need to complete a 1099 for an electrician performing work within their office building, but vacation home owners utilizing their home as a rental property will also need to complete a 1099 for an electrician.

Since this new law potentially affects so many business owners and individuals, what are the best steps for preparing?

(1) Determine whether you are affected. If you have questions, call us.

(2) Begin recordkeeping immediately. Obtain Federal ID numbers of payees and complete a Form W-9 before they begin any work for you.

(3) Consult now with your CPA to proactively learn more about 1099 filing deadlines and other required details. It's easier to play today than to play catch up at the end of the year.

So what is the bottom line of this law? It's a closed tax loophole that requires preparation, planning, and paperwork. If that gives you a headache, then maybe the new provision is related to health care after all.