Monday, August 16, 2010


I have been thinking about the new 1099 reporting requirements that will take effect in 2012.

I am not worried about anything yet. As I said, they do not take effect until calendar year 2012, for Form 1099s issued in January of 2013. And, considering recent developments, for all we know Congress will either repeal or revise these requirements before then.

I have no problem with issuing 1099s to corporations, which is new. And, although I am not thrilled about having to issue a Form 1099 to those who are paid $600 or more for the purchase of “property” (i.e. supplies and equipment, raw materials and merchandise), also new, it does not bother me. It means more work at year-end and in January – but also more billable hours.

Commissioner Shulman appears to be doing us a favor by exempting payments made by credit or debit card from the 1099 reporting requirements, as these payments will already be reported to the IRS by the banks and credit card companies. While this may actually result in additional work for some small businesses it is not an issue for me.

I use a general ledger software (no longer in available) to record cash disbursements for the very few businesses I do on a year-round basis. I enter payments made via check by vendor name, so the software can easily prepare a report of all payments made during the year to each individual vendor, which I would use to type my 1099s.

Checks to pay for credit card charges are entered using the credit card company (i.e. American Express) as the vendor. I do not record credit card payments by individual vendor name – but thanks to Doug I would not need to do so. Debit card payments are treated as if they were checks written and use the individual vendor name – but DEBIT is entered in the system as the check number, so these payments are easily identifiable on the vendor print-out. Payments made from “petty cash” are also treated the same as checks (with petty cash treated as a separate “checking account” in the system) and include a vendor name when available.

While my general ledger software program is out of print, I expect that most all GL programs operate in basically the same manner. So I do not see a problem for businesses that keep their books using GL software. Those who keep their books by hand, especially very small part-time and sideline businesses, will be the ones who will have an increased burden.

{Hey, just because I do not use tax preparation software to prepare tax returns, and at this point expect that I never will, does not mean that I do not take advantage of general ledger and payroll software – that is something altogether different.}

The only problem I anticipate in my particular situation is in getting the Employer Identification Numbers of each and every vendor that is used by my clients. The best practice is to get the numbers up front early in the year and not wait until December to see who is paid $600 or more and chase after the numbers.

If Congress is sincere about keeping the new requirements in place the easiest thing to do is to require by federal law all businesses to clearly identify their EIN on all invoices and statements beginning in January of 2012, if such a law is at all possible.

These new requirements will change the current situation regarding EINs for sole proprietorships and one-person LLCs that do not have employees. Under current law these businesses do not require an EIN – they can use their Social Security number. However with the need to give the majority of customers and clients a number for potential 1099 filings every one-person business will need to get an EIN.

I expect that I will prepare a standard form letter to vendors requesting their Employer Identification Number that I will send out with the first check payment of the year. The letter will state that subsequent payments for invoices will be delayed until a valid EIN has been provided. I have no intention of dealing with “back-up” withholding on payments to vendors - especially if I am not yet certain I will need to issue a Form 1099.

So, while I do hope that Congress will either repeal or ease the requirements, if they do not – so be it.

My final comment on the issue is a repeat. The fact that Congress now wants to repeal these new requirements is a sad but clear indication of the fact that the cafones in Washington either (1) do not take into consideration, or care about, the added burdens that specific legislation will put on affected parties, or (2) do not actually read the legislation they are voting on. I expect it is a little of both.


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