Are those nails scraping across a chalkboard, or is someone asking a small-business owner to do more tax reporting paperwork?
It’s the latter, and Congress has mandated it with a 2012 start date.
The requirement calls for all businesses and nonprofits buying goods totaling $600 or more annually from any vendor to issue that vendor a 1099 form. The buzz this new piece of legislation is causing can be clearly heard from those it will impact most: small-business owners who face additional bookkeeping responsibilities for which they most likely are not prepared.
The record keeping, part of the health care legislation passed in March, will undoubtedly be seen as a burden by many small-business owners because of the additional paperwork, which already keeps many entrepreneurs up at all hours of the night. Piling on administrative responsibilities puts small-business owners at a disadvantage, in many cases because of minimal to no support staff.
The new requirement is similar to one already in place, requiring forms to be filled out for services totaling $600 or more. Business can avoid the requirement by making their purchases with credit or debit cards, but the reality is that many small businesses use checks.
Nonetheless, the IRS is set to begin administering the new tax policy, which is projected to raise $19 billion to help pay for the health care legislation.
As word of the new requirement spreads, politicians in both parties are proposing ways to ease the burden. Ideas ranging from eliminating the requirement altogether to raising the dollar amount of goods purchased requiring reporting to $5,000 and exempting businesses with 25 or fewer employees are being discussed. The political powers are also suggesting polarizing programs to make up for the funds this requirement would have generated.
It’s clear that the likelihood of this being resolved anytime soon is doubtful — leaving us to wonder if the provision, as is, might be the most likely outcome.
There’s little doubt the rule will increase paperwork. Yet, there are those who say the requirement will help the government police business owners who have historically avoided reporting their revenues — leveling the playing field for those who report what they should.
The requirement could also indirectly lead to cost savings for many small-business owners. It forces them to keep better financial records, rather than waiting until the last minute to prepare their records, only to find themselves scrambling at tax time to gather up their receipts and other financial documents and plop them on their tax return preparer’s desk without much organization. Too many small-business owners are guilty of this costly, inefficient way to collect information.
In the end, this new reporting requirement is another task required of small-business owners. While it may level the playing field, it does so at an increased cost to those who abide by the rules.
— David DiPietro is the owner of BookKeeping Express in Mesa, a company that provides professional bookkeeping services to small businesses across the East Valley.