Obamacare, 1099's, and $600 Expense Mandates

[tchandy]

Big 1099 Changes in 2011 for Business Owners and Rental Property

More paperwork...

Beginning in January 2011, if you pay any one person or company more than $600 in a year to provide you with either goods OR services, you’ll need to track that information and issue that person/company a 1099-MISC in 2012. You can thank the Patient Protection and Accountability Act (PPACA) passed in March of 2010 for this new rule.
Under the old rules, you only provided 1099-MISCs to service providers who met the $600+ threshold, and then, only those service providers who operated as a sole proprietor, LLC or LP. You weren’t required to track S and C Corporation providers.
That has now changed, and the tracking requirement applies to everyone … unless specifically exempted by the IRS. So far, it looks as though you’ll have two exemptions to this new rule:

• (a) Payments to tax-exempt goods or service providers, and
• (b) Payments made by credit card, when those payments are captured under new IRS rules concerning payment card and 3rd party Network Information reporting, unless certain conditions apply.

If you’re a rental property owner, you’ve got to abide by the same rules. Under the recently enacted Small Business Jobs Act, P.L. 111-240, rental property owners who receive rental income will be required to issue Forms 1099-MISC to service providers for payments of $600 or more during the year. That will include things like payments made to plumbers, painters or accountants in the course of your earning that rental income. The responsibility for tracking information begins on January 1, 2011, and you’ll be required to send out 1099-MISC forms by January 31, 2012, to each service provider. That means making sure you get W-9s in place early.

Exceptions for Property Owners
The law provides an exception for those property owners who can show that the requirement will create a hardship for them. We don’t know what that means yet: the IRS has been directed to issue guidance regulations on this topic, but hasn’t yet done so. The law also provides an exemption for individuals who receive rental income of “not more than a minimal amount.†Again, we’re waiting on IRS guidance to know what this means and what the minimal amount threshold will be.
One thing we do know: if you’re in the military or an employee of the intelligence community you’ll be exempt from this requirement, if substantially all your rental income comes from renting your principal residence on a temporary basis.
Assuming nothing happens between now and January 1st, your best option is to plan accordingly, track expenses, and collect W-9s from everyone until the rules are clarified.

Big 1099 Changes in 2011 for Business Owners and Rental Property Owners | Diane Kennedy's USATaxAid

 

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[CommonCents]

This reporting will also lay the ground work for VAT. Just what we need, another layer of taxes.

 

[Russ H]

I love unreported income, I feel every dollar sent to the government is wasted and that they get to much already. I say screw them out of every penny. Good for anyone who is doing it.

Funny, I'm the exact opposite.

We work like nutz over here to document every dime that comes in-- literally.

For one thing, it makes the business MUCH easier to sell when your numbers all line up (potential buyers can believe your paperwork/documentation).

And another, I plan on spending my retirement on the beach.

Not in prison.

-Russ H.

 

[hakrjak]

You have to recognize market cycles, and political cycles in order to capitalize. All of this has happened before, and will happen again. It reminds me of the environment that occured in the late 1970's, which paved the way for 20 years of prosperity when things were reversed in the 1980's. Government swings like a pendulum, and while it has swung in a very anti-business direction recently, this only means that it will swing back in a stronger pro-business direction in the very near future. Sit back, relax, and enjoy the ride

 

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[TaxGuy]

I was discussing this with my dad and hopefully he'll add his more valuable .02 on this topic, however, here's mine...

First off, remember that taxes are like the speed limit, nobody follows the law to a T and getting caught depends on two things- 1) how blatantly you break the law(how much you understate income or overstate deductions/credits/adjustments), 2) the mood of the enforcer(IRS auditor in this case).

Keep in mind that the IRS does not have the time nor the resources to enforce all laws, however, there are usually "hot-button" topics that they pay extra special attention to each year. For this year one of them was the 1st Time Homebuyer Credit, for one, it was fully refundable(in '08 it was essentially a no-interest loan) and two, there was plenty of abuse in '08, namely with thousands of credits being taken from a few addresses.

In addition, the Rule of Thumb is "if you take this deduction/credit/adjustment, can you back it up with documentation in the case of audit", if not, you probably should NOT take it. So for this issue, if you can't document your expenses, don't deduct them. With free financial tools such as Mint and online management for all bank accounts/credit cards, it's harder to make the excuse "it's too hard to keep records".

While I understand this is to prevent loopholes and fictitious deductions, this amounts to not hours of research, BUT WEEKS.

This is true, please realize that the evil IRS is doing this to prevent abuse and not to hurt the small business owner.

As mentioned above, if you're doing things the right way, you shouldn't have a problem, however, there is still a need for a better software tool to manage these expenses and if deductions are taken, then sending a 1099-MISC should not be such a big deal.

On the flipside, if this provision becomes reality, there will be a GREAT OPPORTUNITY to create some type of accounting/software program that automates this process ... if this mountainous expedition of paperwork is done manually, you are looking at weeks of productivity down the drain. So while we all should bitch about this provision and try to prevent its reality, it creates an opportunity because thru inefficiency, opportunity is created.

I'm already on it... this will be one of the several avenues we will explore to turn our Slowlane S-business into a Fastlane B-business, or as the book states it's a money-tree seedling "Computer System". There's a few "Content Systems" that we're also exploring that would be relevant and not require the programing skills for the Computer System

Funny, I'm the exact opposite.

We work like nutz over here to document every dime that comes in-- literally.

For one thing, it makes the business MUCH easier to sell when your numbers all line up (potential buyers can believe your paperwork/documentation).

And another, I plan on spending my retirement on the beach.

Not in prison.

-Russ H.

This is why I love you so much

While I agree that taxes suck, I am a firm believer that taxes are a necessary evil and thankfully it provides a great opportunity for us to fulfill needs and legally do something to help the little guy in this battle!

 

[Russ H]

OK, big news (as we expected):

Congress Repeals Form 1099 Requirements! | Diane Kennedy's USATaxAid

Thank you Diane Kennedy for posting this!

-Russ H.

 

[NHS]

OK, big news (as we expected):

Congress Repeals Form 1099 Requirements! | Diane Kennedy's USATaxAid

Thank you Diane Kennedy for posting this!

-Russ H.

Well thank goodness.

 

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[Red]

But I had my 1099 for Four Peaks Brewery all drawn up & ready to go...

 

[max momo]

OH Yah, I remember this thread; great topic and read.

I was accused of an off basis ‘tirade’ and being a ‘whiner’ for missing a ‘golden opportunity’.

funny.

Yet exactly TWO People provided ideas how to make money:

1. Aug 12th, CommonCents offered the opportunity was an add-on to quick books. Great suggestion CommonCents! Had you bought INTU (stock symbol for Intuit, owner of Quickbooks) that day you would be up about 15% in just seven months!

2. August 14th, Max Momo posted the other constructive idea: That the ‘good action’ was Silver as a substitute play.

Had you bought SLV that day you would have DOUBLED YOUR MONEY!

Not a typo.

The ones that made money on this small debacle are the small operators (like us) that switched gold holdings into silver.

Here is how the two metals have compared since August:

iShares Silver Trust ETF Chart - Yahoo! Finance

IF the chart fails to load for you, use the simple yahoo chart to enter SLV (silver proxy, ETF) vs gold proxy (GLD)

(Yes, you ALSO would have made money trading the one ounce and larger gold coins/bars for smaller [fractional] gold coins/bars, but proving that requires much more detailed market analysis and bourse experience than would work on a forum).

The others that posted opportunities regarded how they ‘were going to’ ACT’ (make money?) via some unspecified avenue with vague timelines down the road by throwing in their lot with the tax bureaucracy.

Thanks for the bump!