It hasn’t really been in the news much, but the IRS is quietly putting into action some new plans to try to catch some of the estimated $300 billion dollars a year in tax revenue that’s lost due to incomplete income tax reporting issues. There are so many ways for individuals and small businesses to receive income now, including online sources such as PayPal, that are not required to report income with the same formality as traditional sources.
But the IRS is now trying to change all that, according to a recent article on CNNMoney.com, with forms like the new 1099-K. The 1099-K will require PayPal and other payment processors like it to compile income info for its users and issue them a 1099-K at year’s end (along with sending one to the IRS). In addition, credit and debit card companies will have to send1099-Ks to their clients that receive payments by those methods.
Also, the 1099 MISC will have extended requirements – basically any large business transaction will require a 1099 MISC – not just contract labor services. This will greatly increase the amount of paperwork that small businesses will be required to file at tax time, therefore increasing processing time and expenses. Basically the average small business will go from processing about 10 1099s a year to processing around 200 1099s a year – for everything from the guy who maintains your internet service to your landlord.
Both these changes are actually hidden inside the health reform bill, but nobody seems to know why or how they got there. Apparently they had been waiting for legislation to tack it onto. The 1099-K will go into effect next year and the expanded 1099 requirements in 2012. So is this filling the gap or is this just making it harder to run a small business in America? If it is both, is it worth it? What do you think?