Small business and startup issues: paperwork galore

Last year’s healthcare bill, love it or hate it, contained a provision that slipped in under the radar, but that will have a substantial impact on small businesses and startups. The bill contains two important changes to how 1099s have been used historically. First, 1099s will now have to be issued for goods as well as services, and second 1099s will now have to be issued to corporations as well as individuals. This means that small businesses will now be sending out literally millions of 1099 forms and will be responsible for keeping track of every one of these throughout the tax year. Beginning in 2012, businesses will be required to issue 1099 tax forms not just to freelancers and contract employees, but to ANY individual or corporation from which a business buys more than $600 in goods or services.

This means that in addition to the 1099s that you already prepare, you will also be preparing a flood of these for your office supply provider, office cleaner, caterer, accountant, computer hardware supplier, office furniture vendor, and on and on and on. The bill will drastically alter tax reporting by highlighting payments that have typically gone unreported – the idea is to increase government revenues by helping the IRS to account for millions of these payments.

Small businesses and lobbyists have started to push back hard against this change, realizing the profound impact it will have on their operations and accounting procedures. And the Congress is listening; two bills have been introduced which would repeal this provision and if passed, small business will be spared another regulatory hurtle which could threaten to drown us all under a new flood of paperwork.

And the revenue that will be “lost” to unreported payments? We will all have to live within the honor system as we know it and report those expenses as well as the income we derive from our businesses. Honesty is always less taxing than paperwork.

photo: luxomedia