Small business owners, get ready! Starting in 2012, you’ll be facing a whole new world of 1099 paperwork.
The new health care bill included a small section (reference Section 9006) that mandates all companies to issue 1099 forms for all payments — not just services — and for all vendors, including corporations. What does this mean to you?
- If you sell products as opposed to services, you’ll be getting a lot more 1099s from your customers. Previously, 1099-MISC forms were used to report payments for services. Starting in 2012, 1099s will be issued for tangible goods as well. Whether you sell hardware, beauty supplies or widgets, your business customers will have to report their payments to you if they spend $600 or more with you in a calendar year.
- If you operate your small business as an S-Corp or C-Corp, you’ll be getting 1099s for the first time. Previously, 1099-MISC forms were only sent to non-incorporated businesses and service providers. Now, corporations will have to have their payments reported as well.
- More importantly, all small business owners will need to keep much better records on their vendors. Regardless of whether you hire a freelance graphic designer or buy a computer from Dell, you’ll have to report that purchase on a 1099-MISC at year-end if the total purchases from that vendor exceed $600 in a calendar year.
What can you do to prepare? Start requesting that each of your vendors, large and small, complete IRS Form W-9 for your records. This will give you the legal name, address and Tax Identification Number (EIN or SSN) for your vendor. This is the information that you will need in order to complete a 1099-MISC each January. Trust me, it’s easier to request and receive this information before your vendor has been paid than six months after the fact!