News about 1099 rules and merchant accounts

Discussion in 'Business Operations' started by Richard Martin, Dec 8, 2010.

  1. Richard Martin

    Richard Martin LawnSite Fanatic
    Messages: 14,699

    I know everybody has been praying and hopeing that the new 1099 rules would be repealed but it's looking more and more unlikely every day. In case you haven't been paying attention...

    Starting in January 2012 any and all businesses that conduct more than $600 a year with another business will be required to 1099 that business. If I buy $1200 a year worth of gas from Shell then I'll be required to 1099 Shell in order to use that gas expense as a deduction.

    Here's the latest on attempts to repeal the new rules...

    ObamaCare requires that businesses and self-employed individuals submit 1099 forms to the IRS for all business purchases of $600 or more. The stated purpose for this is to close the 'tax gap' which is the difference between the amount of what is "owed" and what is paid, due to lack of reporting and under-reporting, and is estimated at $300 billion dollars a year. Last week, the Senate failed to repeal the ObamaCare 1099 rule because they could not agree on how to make up the "lost" revenue that would be generated from strict reporting, which they estimated to be $19 billion over 10 years, which is a GROSS underestimate.

    A document from the Senate Committee on Finance in 2009 states that the intention is to close the tax gap (estimated at $345 billion here). If the IRS is 100% successful, they will collect $345 billion a year in extra tax money.

    The key issues are under-reporting and non-reporting, so the government's remedy is to require voluminous detailed record keeping and reporting by businesses and private contractors. They want to monitor how much each business brings in and how much they spend, almost down to the penny (or $600 anyway).

    According to the Senate document, the IRS targets businesses with assets under $10 million for the 1099-MISC forms, as they found that only 8% of them file the forms. The IRS expects the so-called "voluntary" income reporting rate to jump from the current 46% to 95%. This means that the IRS aims to collect $345 billion a year by requiring mountains of detailed paperwork from businesses and independent freelancers. Individual filers are also targeted by the IRS. Traditionally, the IRS 1099-MISC form has been used primarily to report independent contractor income (a service), but it now includes the sales of goods totaling $600 or more in course of business.

    The purchaser or buyer is responsible for issuing 1099 forms for all business transactions. However, this rule applies only to business exchanges, so individuals will be spared from collecting 1099 forms from grocery stores, for example, if the purchases are for personal use and outside of business.

    The new measure is reported to have been waiting in the wings for the right opportunity and now that it is law, and with so much money on the line, it will be almost impossible to repeal. Even if it was repealed, the Housing Recovery Act, a companion to ObamaCare tax laws, goes into effect January 2011

    And if you collect payment from your customers via a merchant account (credit card through one specific bank) or PayPal in excess of $20,000 annually then those rules are changing on January 1, 2011 or in 3 weeks. The big deal with this is the IRS will now be estimating cash payments your business receives based on the amount of money that you receive via your merchant account or PayPal.

    Further, the IRS can guesstimate cash sales based on credit sales and compare those to similar businesses. If the IRS deems the cash sales as being too low, it could trigger an IRS inquiry or audit.

    So if even you don't accept any cash the IRS can presume that you do and audit you.

    The full text of the article can be found here...
  2. JB1

    JB1 LawnSite Fanatic
    Messages: 5,904

    that will bury everybody with more paperwork.
  3. gasracer

    gasracer LawnSite Bronze Member
    Messages: 1,049

    I heard they are trying to repeal it.
  4. djagusch

    djagusch LawnSite Platinum Member
    from MN
    Messages: 4,358

    A good way way for productivity to go down. Need to pay the accoutant more than hiring or giving more hrs to employees.
    Posted via Mobile Device
  5. Richard Martin

    Richard Martin LawnSite Fanatic
    Messages: 14,699

    Yeah. You have to read what I wrote and the rest of the article. It covers those efforts in some detail.
  6. WorldsStrongestLandscaper

    WorldsStrongestLandscaper LawnSite Member
    Messages: 243

    And you call this the land of the free? BIG STEVE B CT STRENGTH WSL
    Posted via Mobile Device
  7. ed2hess

    ed2hess LawnSite Fanatic
    Messages: 14,567

    They will be buried with paperwork...that can't handle what they got now.
  8. TimTim2008

    TimTim2008 LawnSite Bronze Member
    Messages: 1,772

    did this start 2011? or 2012?
  9. zturncutter

    zturncutter LawnSite Bronze Member
    Messages: 1,308

    That is right on the money. From my end using quickbooks it will take just a few mouse clicks to generate the 1099's but there is no way they can handle their end of it.
  10. zturncutter

    zturncutter LawnSite Bronze Member
    Messages: 1,308

    As of now I believe 2012.

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