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September 20, 2010 - 11:46am

More Small Business Woe

posted by C. M. Barons in business, Blogs.
A new tax law embodied in the Affordable Care Act will create mountains of additional paperwork for small business owners.   Businesses and tax-exempt nonprofits will be required to submit IRS Form 1099s for any expenditure exceeding $600 a year for goods or services.  The burden includes recording Employer Identification Number (EIN) or Taxpayer Identification Number (TIN) for all providers when the annual cost surpasses the $600 threshold. 

An estimated 40 million small businesses and non-profits will face stiff penalties for failing to comply.  This massive increase in filing requirements breaches computerized accounting; 1099 paperwork requires hand-generated reporting.  Business offices will be forced to reprogram and overhaul their accounting procedures to comply.

A company that currently generates a dozen 1099s per year could file 600 reports when the system goes into effect in 2012.  Although big business will see little change under the new law, small businesses, particularly those that farm out tax preparation at $74 per hour will feel more pain at tax time.

The new regulation was under advisement during the Bush administration.  In preparation of the 2008 budget, discussions of a 'tax gap' - businesses not paying their fair share set the ball in motion.  Tom Henschke, president of the Pennsylvania-based SMC Business Councils, one of the first organizations to offer analysis of the 2010 health care amendment noted, “…two administrations can claim credit for this."

CPAs are recommending clients begin handing out W-9 forms in advance of the new law. W-9s document tax identification data for withholding purposes. Many small businesses are behind the curve in preparation for the change.  Although a tax gap surely exists- under-payment of $300 billion in federal taxes; penalizing small businesses, non-profits and local government with unreasonable cost and paperwork is onerous.  Honest business people shouldn’t be punished to enable the IRS to ferret out tax evaders. 

Congressman Scott Murphy who represents the Washington County region of New York authored H.R. 5982, the Small Business Tax Relief Act of 2010. His bill would have eliminated the 1099 reporting requirement for small businesses. H. R. 5982 would have also closed tax loopholes for corporations who ship jobs overseas. 5982 came to a vote in July, but failed to garner the two-thirds majority required to pass.  Those concerned with the impact of expanded 1099 filings on our communities should contact their member of Congress and refer to H. R. 5982.

JoAnne Rock
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C.M., I’m glad that you brought up the issue of repealing section 9006 of the Health Care reform bill that relates to the 1099 reporting requirements. You left out a few important details that people should know before they call their representative with questions. The 1099 provision was included in the bill as a means to pay for health care reform. The provision would institute a paper trail and a means to tap into federal income tax revenue from sources suspected of having unreported business income...estimated at around 17B. That figure was used to “offset” the cost of the Health Care bill in keeping with President Obama’s pledge that it would not cost Americans a dime in new taxes Ironically, there is bi-partisan agreement that the 1099 provision should be repealed. Both parties have put forth legislation to repeal it. The Democrats don’t need GOP support to pass a bill. So what’s the problem? Problem #1: The problem was created by passing a bill that nobody read, without proper debate and with no concern as to how it’s provisions would impact the private sector. Problem #2: The Health Care bill is PAYGO compliant. That means that any changes to the bill that reduce the funding for it, must include either spending cuts or tax hikes to make up for the loss of revenue. Problem #3: Partisan Politics and Ideological differences Republicans want to repeal the filing requirement and pay for it by cutting spending on other parts of the new health care act, a strategy that Democratic leaders won’t support. Democrats want to repeal the filing requirement and pay for it by raising taxes on international corporations and limiting taxpayers’ ability to use special trusts to avoid gifts taxes. Republicans won’t support that. Problem #4: Speaker of the House, Nancy Pelosi You correctly stated in your post that the Democratic sponsored bill, HR 5982, contains a provision to repeal the new 1099 requirements, yet it failed to garner the necessary 2/3 votes to pass the House. Why did it need a 2/3 vote to pass instead of a majority? Here's why: Just before the House left town for August, Dave Camp, the ranking Republican on the Ways and Means Committee, offered an amendment that would have rescinded the 1099 mandates; as a "motion to recommit," it was guaranteed an up-or-down vote. Speaker Nancy Pelosi and Sander Levin (D-MI), the bill’s sponsor, for whatever reason, pulled their entire bill and reintroduced it a few hours later, with the basic Camp language still included. But, she added one big catch: The bill was put on the House suspension calendar, meaning it needed a two-thirds majority to become law, which they knew they would not get as long as there were tax hikes included. Thus, Democrats can now say they voted to repeal the 1099 burden without in fact having repealed it. Why would the Democrats NOT want to repeal the 1099 mandate? Probably for the same reason they passed HR 5297, sponsored by Barney Frank (D-MA). It imposes the same 1099 requirement, but this time it is directed at landlords. If you own rental property, you will have to issue 1099 forms to anyone that does work on your property valued at $600 or more (goods & services). This bill awaits President Obama’s signature. It is jokingly referred to as The Accountant Full Employment Act. I also would like to comment on the part of the bill that you mentioned regarding closing tax loopholes for corporations who ship jobs overseas. This is one of the major points of contention between the Democrats and Republicans. I have read HR 5982 and the section that deals with this is very difficult to understand unless you happen to be well versed in economics and international finance....which I am not. I’ve included a link to an article that explains it in simpler language. http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offsh... There are compelling points to both sides of the argument. I’m leaning toward opposing it. The tipping point for me would be to know how this law would affect a local, multinational company, such as Graham Mfg. I certainly wouldn't want our community to lose any jobs at Graham's because this bill might put them at a disadvantage in the global marketplace.

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