Plan Ahead: New 1099 rules
The new health insurance legislation imposes significant new tax reporting requirements. In essence, you will have to report most annual payments for goods and services exceeding $600 — including payments to corporations — on Form 1099. Fortunately, the new 1099 rules will not be in effect until 2012. This gives you plenty of time to adjust your accounting procedures and prepare for the strike of new paperwork.
Under current law, a business must report on Form 1099 compensation (commissions, fees, etc.) paid to an individual, such as an independent contractor, if the annual amount exceeds $600. The same rule applies to interest, rent, royalties, annuities and income items paid to a single recipient.
Both the recipient and the IRS receive a copy of the 1099. It must include the annual amount of the payment, contact information about the recipient and the recipient’s Taxpayer Identification Number (TIN).
However, these reporting rules generally don’t apply to payments made to a corporation. Also, your business doesn’t have to issue 1099s when it purchases goods.
New law changes: Beginning in 2012, the new Patient Protection and Affordable Care Act of 2010 changes the current reporting rules in three ways.
1. Payments to corporations: The reporting exemption for corporations no longer applies.
2. Payments for goods: The reporting requirement is generally extended to payments for property such as merchandise, equipment, raw materials and the like.
3. Payments of gross proceeds: At this point, it’s not exactly clear what “gross proceeds” covers. The IRS is expected to issue guidance shortly.
These three new law requirements will likely affect you on both ends of the spectrum. As a payer, you may have to churn out significantly more 1099s and obtain the TINs of each recipient. As a recipient, you could be bombarded with forms and you must supply the payers with your own TIN.
Tax Specialist, Emil Estafanous, CPA can help modify your business accounting procedures to accommodate the new reporting rules. Do not wait until the last minute to implement changes. Get a head start by calling the Tax and Accounting office of Certified Public Accountant, Emil Estafanous for a consultation.
Emil Estafanous, CPA provides an integrated suite of tax preparation, tax planning, tax advocacy, payroll, QuickBooks mentoring and financial planning services for businesses and individuals.
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