Small Business Owners Avoid Extra Bookkeeping

The following post is from Madison of My Dollar Plan and Kids and Money at about.com:

source: the biella

When congress passed the recent healthcare reform bill, there was a little provision in it that would have had big impacts for small businesses. Luckily, it was recently repealed. Here’s more from Jill, one of the staff writers at My Dollar Plan:

The new healthcare law included one non-healthcare related provision: beginning in 2012, businesses would be required to send 1099s to individuals and corporations who sold more than $600 worth of goods and services to that business in a given year.

This was a change from current law, which requires businesses to send 1099s for $600 worth of services provided by a non-incorporated individual (usually independent contractors).

Recently, President Obama signed a law repealing the planned change, much to the relief of many small businesses.

What it means.

Since the 1099 change hadn’t gone into effect, most people won’t notice a difference. Instead of spending this year making plans to meet the new requirement in 2012, business owners can use existing methods for tax planning and sending 1099s.

Small business owners are especially happy with the repeal since they were worried it would place an unnecessary bookkeeping burden on them.

This repeal has nothing to do with the new 1099 requirements for eBay sellers and other businesses who receive income from third party processors such as PayPal as that requirement was part of a different law. The eBay 1099 requirements will still be in effect.

How they paid for it.

The original 1099 requirement called for the change to increase tax revenues by $47 billion over 10 years, even though some experts feared it would actually lead to an uptick in tax fraud.

While $4.7 billion per year is not exactly a huge piece of the federal budget, lawmakers still had to make sure that any repeal provided for a way to raise an equivalent amount of revenue. So the repeal has a healthcare-related provision that will do just that.

When health insurance becomes mandatory in 2014, the government will provide subsidies to low-income families who can’t afford insurance premiums. Because premiums are due in advance, the subsidies will be provided in advance based on the previous year’s income. The 1099 repeal calls for a repayment of subsidies if eventual current-year income ends up being above the threshold.

I know many readers operate small businesses and were fearing the burden the 1099 changes were going to bring. Now we can all feel a little relief that we won’t be buried in paperwork… and we won’t have to worry about sending a 1099 to Staples just for buying office supplies!

Were you aware of these changes in the law?

Madison DuPaix is a mom to three young children with a background in finance and insurance. She loves retirement planning and taxes, and recently started her own tax business. Madison is the author of My Dollar Plan and is the guide to Kids and Money at about.com.