Health Care Bill Section 9006 and Your Small Business-HUGE New Small Biz Expense!)

Marcus Law ^ | 5-5-10 | D.J. Marcus

[tcrlaf]

When Congress passed the Health Care Bill in March, they inserted a seemingly insignificant section that will eventually have sweeping implications. It will increase accountability for the small business taxpayer to keep accurate records and make it more difficult for business to claim improper business expenses to offset revenues during the tax year. What does it say?

Section 9006 of the bill amends Section 6041 of the Internal Revenue Code in the following way:

SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS. (a) IN GENERAL.—Section 6041 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsections: ‘‘(h) APPLICATION TO CORPORATIONS.—Notwithstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of this section the term ‘person’ includes any corporation that is not an organization exempt from tax under section 501(a). ‘‘(i) REGULATIONS.—The Secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.’’. (b) PAYMENTS FOR PROPERTY AND OTHER GROSS PROCEEDS.— Subsection (a) of section 6041 of the Internal Revenue Code of 1986 is amended— (1) by inserting ‘‘amounts in consideration for property,’’ after ‘‘wages,’’, (2) by inserting ‘‘gross proceeds,’’ after ‘‘emoluments, or other’’, and (3) by inserting ‘‘gross proceeds,’’ after ‘‘setting forth the amount of such’’. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to payments made after December 31, 2011.

The original section of the Internal Revenue Code reads:

Sec. 6041. Information at source

(a) Payments of $600 or more

All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or 6050N(a) applies, and other than payments with respect to which a statement is required under the authority of section 6042(a)(2), 6044(a)(2), or 6045), or $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.

Combined, the relevant edits produce:

Sec. 6041. Information at source

(a) Payments of $600 or more

All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, amounts in consideration for property, premiums, annuities, compensations, remunerations, emoluments, or other gross proceeds, fixed or determinable gains, profits, and income (other than payments to which section 6042(a)(1),6044(a)(1), 6047(e), 6049(a), or 6050N(a) applies, and other than payments with respect to which a statement is required under the authority of section 6042(a)(2), 6044(a)(2), or 6045), or $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for,shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gross proceeds, gains, profits, and income, and the name and address of the recipient of such payment. What does this mean for your business?

Normally, you would tally up receipts for your payments to your vendors and include them in the relevant sections of your tax return as business expenses. Now, with these changes, you will have to issue a 1099 to each vendor, whether individual or corporation, from whom you purchased over $600 of goods or services during the fiscal year and send a copy of that 1099 to the IRS. This is in addition to the 1099s you had to issue previously.

You’ll also be receiving a 1099 from each business to which you sold over $600 of goods or services.

Each new 1099 will need to be reported on your tax return at the end of the year.

[tcrlaf]

The Obamacare law is a business-choking OBAMANATION that dramaticly raise costs, taxes, and kill jobs. Too bad the Democrats didn't read the damn thing to figure out what was in it, eh?

This will add Hundreds of hours of Federal Tax paperwork for small firms that do many transactions.

[EagleUSA]

That is the whole idea — to motivate businesses to dump their insurance load into the GOVERNMENT system. Socialized medicine and big government control over the public has been the goal all along — NOTHING has changed. Until 2012.

[businessprofessor]

I do not believe this provision will be enacted. This provision and many others will be used as bargaining chips by the rats to further expand government control of health care. Democrats may demand the public option and price controls on insurance companies in exchange for dropping provisions such as the new 1099 reporting requirement. The bill was designed to fail allowing Democrats the ability to increase the level of government control of the health care industry.

[WinMod70]

Looks to me like the framework needed for instituting a VAT.

[taildragger]

Looks to me like the framework needed for instituting a VAT.

And I was the 1st to post such a concept, a few weeks back after a CPA friend of mine read the AICPA executive summary of the plan and this particular blurb sent the CPA's BP through the moon. It will be a paperwork nightmare for small businesses and the CPA's they hire...

http://www.freerepublic.com/focus/news/2483898/posts

[Buckeye McFrog]

the local seasonal Lemon Ice stand opened up a week ago with some HUGE price increases over last season (must be the Federal mandate to pay for health care for all of your part-time workers while you’re open from May thru September)

[tsomer]

This will cut the bottom out of the lawn and grounds maintenance industry.

A lot of illegals will be affected.

[tsomer]

This will cut the bottom out of the lawn and grounds maintenance industry.

A lot of illegals will be affected.

[Trust but Verify]

You are so right. In case you missed it:

http://money.cnn.com/2010/05/05/news/companies/dropping_benefits.fortune/index.htm

[PugetSoundSoldier]

Also means you get to send a 1099 to the gas station from whom you buy the gas for your mowers and trimmers.

And you get to send a 1099 to the tire shop that puts new tires on your truck.

And you get to send a 1099 to McDonald’s for the lunch meals you bought the guys.

And you get to send Stihl a 1099 for the three new edgers.

And you get to send a 1099 to Carhart for the 8 work jackets with custom embroidery.

And you get to send a 1099 to YellowPages.com for the advertisement.

And you get to send a 1099 to Verizon for the cell phone you use.

And you get to send a 1099 to the mower repair shop for the repairs/maintenance on your mowers.

And you get to send a 1099 to the flyer printer for the flyers you distribute around the neighborhood.

Plus a 1099 to the company that distributes those flyers.

And a 1099 to the county waste facility/dump for the dumping of your lawn trimmings.

And a 1099 to the water company for the water used to wash off your equipment.

Not to mention a 1099 to the electric company for the lights at the office.

Or the 1099 to the natural gas company for the gas you used to heat water and stay warm.

And on and on...

Basically, this will mean every business that doesn’t have a dedicated bookkeeper will now need to have one, or the boss will have to do nothing but bookkeeping. This will crush small business, yet small business is where the growth in new jobs come from (something like 40:1 over large, F100 companies).

[ridesthemiles]

I have been a full charge bookkeeper for over 35 years.

This requirement is more crushing than you realize.

For a small business that buys it’s fuel at only one station, you only need to coherce the immigrant from Pakistan who runs the station to give you correct information. W-9’s & 1099’s will be taking down a number of forests in the USA to accomplish this.

For the business that has employees working all over the country, it means getting information from hotels-motels-rental car companies-airlines-restaurants- places you would never think of. I think you would even have to get out a 1099 for your postage purchases from the USPS. Your freight companies-UPS-Fed Ex-local delivery guys.

I have never seen software that will allow me to separate fuel purchases from a number of different sources. Got 6 salesmen putting gas into rentals cars all over the country? They have to get the w-9 info first!!
Buying office supplies? Staples will be really happy!! NOT.

This breaks the backs of every small business in the country. All the rhetoric from NObama & his administration about getting small business back up on it’s feet is just smoke & mirrors.

I have done books for small businesses for over 35 years of self-employment. I am used to preparing 1099’s for rent & outside labor or services which are not incorporated. Not too bad. But this explodes the problem beyond anything I could envision.
One of my clients goes across 4 different So Calif counties doing heating & A/C work. He buys gas where & when he needs it. Even if he does so on a Chevron card- I will have to know the w-9 info on probably as many as 100 different stations he might purchase from.
He buys stuff from Amazon- jackets from Texas- it just goes on & on.

This could create a huge CASH network of services.

I honestly do NOT know how I can properly comply with this kind of demand by NObama for my 2 remaining clients.

[Man50D]

The content is irrelevant! Any federal version of health care is unconstitutional on its face since Article 1 Section 8 does not specifically grant Congress the power to regulate health care! The people are not bound by an unconstitutional act! This is the point people need to hammer home with their Congress critters!

[savedbygrace]

A couple of years ago, I needed to send a 1099 to a contractor I hired to help with a video shoot. First time I had paid any individual more than $600 a year. Only time I’ve had to send out a 1099.

Getting the numbers wasn’t so difficult or time-consuming. The problem was printing the 1099. I think you need special software to print them.

By the time I would have bought the forms and the software, it would have cost me much more than the penalty for not sending the 1099, I think. Is there a penalty, or do they just throw you in jail?

I just had my CPA handle it. I forget what he charged me, but at least I didn’t have to struggle with it.

If this new provision goes through, I’m going to be spending a whole lot of money to obey the law. Just tracking my Amazon purchases will be a nightmare.

[ConjunctionJunction]

Did you see the part at the end of the article?:

“The buzz on the internet is that this will create mounds of unnecessary paperwork for small businesses across the country. It is true that the number of 1099s will increase significantly, however, I see two positive implications of these changes. First, it will force business owners to keep better records, report income more accurately, and pay the proper amount of taxes. Second, will also cut back on fraudulent business deductions, which will ease the burden on the IRS to catch tax cheats and, hopefully, save the rest of us honest taxpayers the hassles associated with overbearing IRS scrutiny. The work involved in issuing 1099s to your vendors and processing the 1099s you receive will not be overbearing. Think of it as high school math class – you don’t get an A without showing your work.”

[DBeers]

The problem is not insufficient tax collection -the problem is BIG GOV idiots borrowing and spending too much money...

Lets see some GOV reform -lets see those clowns account for every expense... They work for us supposedly...

[PugetSoundSoldier]

I hear you! I travel extensively for my job; domestic and international. I have lots of questions:

- I rent from Enterprise, most of the time from corporate-owned lots, but sometimes (and over the $600 limit) from franchisees. Do I send each individual lot a 1099, corporate, or what?

- When I fly to China (where I do half my work, and the company I work for is based in Hong Kong) do I 1099 Delta for the Seattle-to-Tokyo portion only, or include the Tokyo-to-Shanghai part as well?

- I buy my business cards and sales brochures from a printer in Suzhou, China. Do I send him my 1099, even though he’s a 3 man operation in China?

- For that matter, my bookkeeper? He’s a great Chinese guy, working in Shanghai. Costs me $60 a month, tracks all my expenses worldwide, does all the tax issues I need in China, HK, Thailand, and prepares the reports I need for the US. Do I have to 1099 him in order to deduct his expenses? Yes, he’s licensed...

- How about the pizzas I buy factory workers for rewards when I’m over there? I spend about $1000 a year on pizza bonuses (you’d be surprised how well it works in terms of quality and productivity of work), from Papa John’s. It’s a wholly-owned foreign company in China, owned by Papa John’s corporate in the US. Do I send them a 1099 for transactions strictly overseas?

- What about phone calls? I use a lot of China Mobile and SS123 in Thailand, over the $600/yr limit. Do I have to 1099 them?

- As a traveler yes, I indulge in a McDonald’s or other chain meal every once in a while. Do I record the purchases of a McDouble in Tokyo or Singapore for my 1099?

- What about the Slurpees I buy in Singapore - do those count towards my 1099 for 7-11 corporate?

- How about gas from ExxonMobil/Esso? I buy from them around the world, can I only deduct the portion that I 1099, that which is inside the US, not Canada or the EU?

This is simply a nightmare, there’s no way it can be tracked or adequately explained. The entire franchisee issue is massive as I may spend $1200 with a company nationwide, with maybe only $700 at franchises (rather than company owned stores). Do I now have to track each franchise independently, or do I have to consider the franchisee’s payment back to corporate? If the franchises send more than $100 of my purchase back to corporate, do I have to consider that and 1099 corporate as well?

I guess it’s time to officially stop all economic activity inside the US, and simply do anything that is billable or expense-account related overseas. I’ll just become an employee of an HK company rather than an independent contractor, so the US Government will lose out on all my taxes (I’ll make sure I’m compensated under the limits for expats), and the US economy will lose my purchases.

If this actually becomes enforced (it’s already law), I’ll let my CPA and lawyer go, since I won’t be in the US any more. There’s a good amount of money that will permanently leave the US market.

This is what happens when Congress is populated by lawyers rather than business people. If you’ve never run a small business - success or failure - you have no experience with actual real-world economics and the needs/challenges of small business. And you shouldn’t be in Congress at all.

Time for the little guy to get hammered, but I guess as long as we’re not too big to fail it doesn’t matter, huh?

[PugetSoundSoldier]

Second, will also cut back on fraudulent business deductions, which will ease the burden on the IRS to catch tax cheats and, hopefully, save the rest of us honest taxpayers the hassles associated with overbearing IRS scrutiny.

I love that... Yeah, the working class Joe may have less of a "burden" from the IRS scrutiny, but their neighbor who's a plumber (and must now 1099 Home Depot, Lowe's, ExxonMobil, Ford, Big O Tires, Costco, etc), the local Subway Shop (1099s for the janitorial service, for the utilities, for corporate franchise fees, for food distribution), the newspaper carrier (gas at 7-11, papers from the local newspaper), etc. will have to increase costs to cover all the extra reporting.

And of course each of those people will have to 1099 their CPA firms (yeah, pay your CPA to 1099 themselves), who will also have to 1099 Staples for the tax forms, who will have to 1099 the distributor of the tax forms, who will have to 1099 the manufacturer of the tax forms, who will have to 1099 the ink and paper suppliers, who will have to 1099 the loggers and chemical companies...

[mojitojoe]

Screw that Kenyan, I have no intention of doing that.

[2ndDivisionVet]

Yet I can get English-speaking college graduates for my business at about $40 a month total cost versus massive taxes in the USA.

http://www.LivingInThePhilippines.com

If I know about it, many business people do too.

[prairiebreeze]

Screw that Kenyan, I have no intention of doing that.

My reaction too. How are they going to know?

FUBO.