The tax man cometh...

This was taken from my latest blog post. I know many of us on here are business owners and this is something every business owner should be aware of:

Small business owners and entrepreneurs beware, the tax man cometh. This past week, a new easter egg tax reform was found hidden within the Health Care bill our wonderful lawmakers just passed.

Meet Section 9006 of the health care bill.

It’s quick reading. At about one page long it’s easy to see how it went unnoticed within the 2,409 page bill, eluding debate or discussion. If you read it a few times, as I have, it sounds so innocuous. But like a car salesman glossing over the fine print of a very one-sided sale, someone is about to get screwed.

1099’s have always served one purpose: to document income for individual workers that was not considered wages or salaries. Each business would issue them at the end of the year to any independent contractors that had done more than $600 dollars of work for them. Now, however, the 1099 form is about to take on a whole new meaning. Any goods and services purchased from a business in excess of $600 will now have to be 1099’d.

Did you buy an Dell computer this year? If so, you will now have to get a W-2 form from Dell and send them and the IRS a 1099 at the end of the year. The same for virtually EVERY company you do business with. Your vendors, your landlord, the restaurant around the corner you treat your employees to every friday. If you spent more than 600 dollars with them within the year, each of them will have to be 1099’d.

With the health care bill handing the job of enforcement to the IRS, there was already cause for alarm. The healthcare bill has now handed the IRS a task so large it will need to hire on hundreds if not thousands of new positions. With this new tax regulation, it will likely take twice as long for a small business to file their taxes each year. This costs more money, thus hurting a small business’s ability to employ. This will achieve exactly the same effect as a tax increase.

The reason for this sneaky new law is to give the Federal Government a better idea of where businesses are spending their money. They’re hoping it will help them catch more unreported income and in-turn raise tax revenue. But that’s probably a very rosy assessment of how the information will be used. Tens of millions, if not billions of new 1099’s will need to be issued each year, giving the Fed a very clear picture of every business’s balance sheet.

Every year our government spends roughly $1.5 trillion dollars more than its revenues bring in. I believe strongly that the knowledge gleaned from this 1099 perversion will be put to good use in auditing algorithms and future tax decisions against small businesses. As anyone who has ever been audited will tell you, the tax man always gets the last word.