Tax Reporting for Small Business Scheduled to Increase in 2012

A controversial provision will require businesses to report to the IRS not only the money they pay for services but also what they spend on goods they purchase from a vendor in a year that collectively cost more than $600.

Currently businesses issue Form 1099s to any independent contractors or Freelancers they paid for work during the year.
 
The new regulation increases the scope to include tangible goods purchased during the year as well.  If your business uses paper for a copier or fax machine and you purchase more than $600 worth during the year, a Form 1099 needs to be issued to the store or vendor from which you made the purchase. So, the regulation also expands the business reporting burden to include not only individuals but corporations too.

By any estimation this is a significant administrative burden for small businesses that don’t typically have large in-house accounting departments. And don’t forget the data collection burden. . .gathering names and taxpayer identification numbers for every individual and vendor can be a daunting task. Or an expensive one if you need to redesign your accounting system.

In 2011 Congress will be debating additional legislation aimed at removing this reporting requirement. Whatever happens in the short term, it could be a good idea to start gathering such information now just in case it is required in the future.