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Wednesday, March 16, 2011

1099s - manageable for small businesses?

The New York Times article - "Why the New 1099 Rules Aren’t That Bad for Small Businesses" by Robb Mandelbaum (3/14/11) suggests that with software and technology, it is not that difficult to file 1099s including for purchases of goods. It notes, for example, that QuickBooks can track the information and print the 1099s.

I don't think that is entirely correct because the 1099s have to be on scannable forms that are obtained from the IRS, unless electronic filing is used.

The article also notes that if payments are made on credit or debit card, they don't need to be included on a 1099 issued by the purchaser of the goods or services. Well, what if a business uses both check and credit card when buying from particular vendors? I think it has to track it separately and just file a 1099 for the check payments. While software can separate these amounts, will the 1099s be that useful to the recipient?

Also, some of these recipients are publicly-traded corporations that are likely compliant. And, large companies, likely to also be on accrual method and a fiscal year, won't bother reconciling the 1099s - it will be a waste of time.

The cost-benefit of the expanded reporting just doesn't seem to be there. See "1099s - the good, the bad and the ugly," AICPA Corporate Taxation Insider, 11/11/10.



Anonymous said...

The thing that is important though is to do away with the idea held by some that if it's not reported it doesn't have to be reported. The thing in dispute is how the cost of lost tax revenue is to be shared - either explicitly by businesses in compliance costs or implicitly by everyone in higher rates to offset the loss.

Brian Y - SJSU said...

I agree with what you said that even though it’s not that difficult to file 1099s, it’s not that easy and simple either. When I worked at small size property management company, it was difficult during tax season since there were a lot of different vendors that we needed to send 1099 form to. The worst part is that some of them, especially the smaller ones, didn’t provide us with the tax ID number, which made the process even more difficult to issue 1099s for them.

According to Mike Broemmel, eHow Contributor, the function of form 1099 is “to report to the IRS how much money was paid by a corporation to a particular individual through the course of a particular tax year (” It excludes payment made for wages, salaries, or tips. However, in my opinion, 1099s are not an efficient usage of time, because vendors should already be keeping track of how much income and profit they are generating from their business. If I have that record in their books, why would they need 1099s? I believe that the IRS uses 1099 form as “preventive form” to report income other than wages to make sure that businesses, especially small businesses, don’t get away from not paying the amount of tax that they supposed to pay. Therefore, I agree with your point that the cost-benefit of expanded reporting just doesn’t seem to be there, at least not in the near future.