Here's the description:
The provision, which takes effect next year, will require businesses to file 1099 tax forms reporting any purchases they make of goods or services above $600 from any individual or business, including corporations. Currently, businesses only need to file 1099s when they buy services - and only when the vendor is an unincorporated person or business.There are currently proposals to drop or modify the provision.
I'm sure I don't understand. If I'm a business, I've a check book and a credit card. And I have accounting software (Quicken or whatever). So I know to whom I make payments and for how much, don't I? And I could run a yearly report showing payments by payee, couldn't I? And to make a payment in Quicken I need the payee's name and address. So as far as I can see the only thing I'm missing is the payee's social security number or tax ID number. Getting that, I admit, would be a pain.
So based on my lack of understanding, what would make sense is:
- allow a small business to certify they do not use any accounting software and waive the requirement
- businesses which use accounting software would have to submit a yearly report of payments along with their tax return
- tell IRS they have to, when developing software to audit such reports, include a module to try to match the incoming name and address to their master file of tax ID's and SSN's.
- give IRS the right to go to developers of accounting software and pay them to tweak their software if necessary to meet the requirement, assuming my ignorance hides some other complication. (I don't really like this idea; it would set a precedent, but if you're going to lose billions in taxes over ten years, spending a few millions is cost-effective.
2 comments:
Maybe the problem is more for the entity/person getting the money, not the person/entity making the payment.
We have a family farming operation. We have one tenant who does some custom farming work for us as an individual and we have to issue a 1099. We have another tenant that also does custom farming work for us and he is incorporated. Because he is incorporated we do not have to issue a 1099.
Think about all of the seed corn/bean dealers that are receiving payments and may be predisposed to not report quite all of the income.
This provision would close the loophole.
You think? :-)
You have explained one reference in the Post story I didn't understand--the "tracking the receipts" bit. If the recipient now has to report income by payee, then someone who is accounting for receipts by purpose (i.e. "payment for custom work" as opposed to "John Doe--custom") is going to have more paperwork to do, as well as a more businesslike business IMHO and just incidentally a more accurate tax return.
The first mention of the 1099 I saw was on John Phipps blog, and he was worried about issuing them, not receiving them, so I carried that over to my reading of the Post article.
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