The New 1099 Reporting Law Is Bad for Your Business Start-up

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The Federal Government wants your business start-up to thrive. The United States SBA has put in place a variety of stimulus-type initiative to help you with that but in other ways, they aren’t making it easy for small business owners like you to thrive. One of those ways is the new 1099 reporting requirement that was hidden inside the 2,000 page health care law.

It’s not very often that Republicans and Democrats agree on anything but in this case, they’re in total agreement when they say that the new 1099 reporting requirement needs to go. Here’s how it works: As it stands now, 1099s are only filed by a company under a relatively small set of circumstances such as when they hire an individual to do a service when the amount is more than $600.

A typical 1099 form requires a large amount of work. Imagine that your business start-up hires somebody to do a certain service and pay them more than $600. You send them a check along with a W-9 form that requires information like name, address, the person’s social security number and other personal information. The person most likely already has their payment so your W-9 form isn’t at the top of their to-do list which requires management on your part to get that form back.

Doesn’t seem like a problem if you are operating under the old rules but now, you will have to file a 1099 for virtually every business transaction you make that is over $600. This could be hundreds or possibly thousands depending on the size and diversity of your business. How many paperwork hours will you spend completing these forms instead of growing your business?

The Other Side

The paperwork is inconvenient but the other side of it is catastrophic. You formed your LLC and now, you’re registered as a small business and are busy growing your business. You may have little to no chance of winning a bid if a certain company is attempting to reign in bookkeeping costs by only dealing with a small amount of vendors for all of their needs. In short, they don’t want you because a new business relationship is more tax compliance time spent by their bookkeepers.

At some point, there will be an expert who publishes an article that says that every new vendor like you represents so many more average hours in bookkeeping costs due to the new 1099 reporting law.

The Bottom Line

Politicians agree that this part of the health care law must be repealed but until they find a way to replace the $2 Billion in revenue it produces, it will remain a law. Have any ideas?