The pending 1099 nightmare...

[Moliere]

...If I remember correctly, this bugger is still looming even after Democrats tried to kill it. Looks like business are in for a nightmare in paperwork soon.

As the largest coin and precious metals dealership in Michigan, we serve more than 60,000 walk-in customers and tens of thousands of mail-order customers per year. The majority of walk-in customers sell merchandise to us, with a very high percentage selling us $600 or more over the course of a year. I estimate that my company will have to file 13,000 to 15,000 Forms 1099 annually above what we are already required to submit.

http://www.journalofaccountancy.com/...0/Nov/Form1099

[Uncle Ted]

...If I remember correctly, this bugger is still looming even after Democrats tried to kill it. Looks like business are in for a nightmare in paperwork soon.



http://www.journalofaccountancy.com/...0/Nov/Form1099

Right as the IRS is putting the finishing touches on its 12 year/$3.24 billion computer upgrade. Seems like the perfect storm for an huge computer crash. Any bets on how long our tax returns are going to be delayed?

[Moliere]

Looks like the Democrats are pushing to remove the 1099 reporting requirement from Obamacare. Good for them.

http://sbc.senate.gov/public/index.c...e-93c0830cf655

I will say that the widdling down of the revenue pieces of Obamacare is very interesting given the circumstances under which it was originally passed.

[Flystripper]

He spoke of getting rid of it in the SoU last night

[TripletDaddy]

I forgot about this. I started doing some reading and I think the language exempted credit card purchases, which would eliminate a bunch of these things that are allegedly going to take thousands of hours to fill out.

[Moliere]

I forgot about this. I started doing some reading and I think the language exempted credit card purchases, which would eliminate a bunch of these things that are allegedly going to take thousands of hours to fill out.

Well, it seems that the two major political parties have enough concerns around the burden it will place on businesses that they would both like it repealed. So it's the Demopublicans vs. DDD.

[TripletDaddy]

Well, it seems that the two major political parties have enough concerns around the burden it will place on businesses that they would both like it repealed. So it's the Demopublicans vs. DDD.

This will be good news for the thousands of small business owners out there who admit that they are incorrectly reporting their income taxes and don't care to learn how to do it correctly.

[jay santos]

This will be good news for the thousands of small business owners out there who admit that they are incorrectly reporting their income taxes and don't care to learn how to do it correctly.

That's a very generous way to describe that behavior.

[Moliere]

This will be good news for the thousands of small business owners out there who admit that they are incorrectly reporting their income taxes and don't care to learn how to do it correctly.

Which leads me to my next question. This will obviously result in less revenues being collected by the IRS than if the 1099 requirement was left in place. So, given the circumstances under which Obamacare was passed, will there be an uproar that Obamacare is slowly going from a projected net positive in revenue to a net negative?

Remember that Obamacare was passed and reconciled using the reconciliation provision in the senate. It had to meet certain financial thresholds to qualify to pass under this provision and one of those was that it would have to be deficit neutral for the first five years. There was already some monkeying with taxes to get it under the required threshold, but now they lose another couple billion dollars a year. I'm not calling for repeal, I just find it interesting that the revenue measures in Obamacare are slowly going away. I guess I should expect this with most major legislation.

[Uncle Ted]

I forgot about this. I started doing some reading and I think the language exempted credit card purchases, which would eliminate a bunch of these things that are allegedly going to take thousands of hours to fill out.

The IRS' proposed exception for credit/debit card purchases hurts small businesses, however...

Some big-ticket consumer items that are typically paid by card -- airline tickets or hotel stays, for example -- will be 1099-free. But SMC Business Councils President Tom Henschke, a vocal critic of the new law, estimates that exempting credit-card transactions would affect less than 10% of his members' reporting requirements.

"Most of the small businesses out there that do small business [purchasing] don't do it by credit card," he said. "One of the reasons is the transaction cost is very high -- 2% to 3%."

Henschke thinks the main beneficiaries of the exemption are likely to be credit-card companies, which will gain an added hook to get small businesses to pay their fees.

[...]

Henschke foresees another unintended consequence of the new reporting provisions: that in order to cut down on tax forms to be filed, businesses will trim the number of vendors they do business with. "I've actually heard businesses talking about consolidating their purchases, going from 150, 200 vendors, down to less than 100," he said. "That will most certainly lead to some small businesses being swept under the door."

Small businesses = 64% of new jobs in the last 15 years. Get ready to extend unemployment benefits again.

Another problem with this new 1099 provision is the potential identity theft explosion...

What this means for the millions of businesses in the US is that they will have to obtain confidential tax information from almost anyone who provides a good or service, even if the first transaction in a calendar year is under $600, in order to avoid paying a penalty if a 1099 Form is eventually required. Once this information is obtained, each of the businesses must follow the legal requirements for protecting this confidential information in order to avoid a penalty for violating these regulations.

[...]

However, think about the implications of millions of businesses having to obtain confidential tax information from a massive number of sellers of goods and services. Can the US government guarantee that 100% of them will competently protect this information from identity theft? NO! Can the US government guarantee that absolutely none of these millions of businesses (especially those in dire financial straits) will see the opportunity to increase cash flow by selling lists of confidential customer information to identity thieves? NO WAY!

Instead, in my judgment, the tremendous increase in the gathering of confidential tax information just about guarantees soaring increases in identity theft!

If the government wanted to eliminate tax loopholes then it really should consider simplifying the tax code and even consider replacing the current tax system with something like a flat tax or national sales tax, IMO.

[Uncle Ted]

Which leads me to my next question. This will obviously result in less revenues being collected by the IRS than if the 1099 requirement was left in place. So, given the circumstances under which Obamacare was passed, will there be an uproar that Obamacare is slowly going from a projected net positive in revenue to a net negative?

Remember that Obamacare was passed and reconciled using the reconciliation provision in the senate. It had to meet certain financial thresholds to qualify to pass under this provision and one of those was that it would have to be deficit neutral for the first five years. There was already some monkeying with taxes to get it under the required threshold, but now they lose another couple billion dollars a year. I'm not calling for repeal, I just find it interesting that the revenue measures in Obamacare are slowly going away. I guess I should expect this with most major legislation.

I recall in SoU Obama mentioning something about pushing for tort reform. Maybe someone finally figured out that the potential savings from tort reform is much greater than the potential revenue from the 1099 provision. Of course, Harry and friends are still not going to like it but I wouldn't be surprised if tort reform and the 1099 repeal end up on the same bill in order to make this health care improvement look like it is still keeping it deficit neutral.

[NorthwestUteFan]

If the government wanted to eliminate tax loopholes then it really should consider simplifying the tax code and even consider replacing the current tax system with something like a flat tax or national sales tax, IMO.

That sounds great, but my fear is they will simply ADD a national sales tax to the existing income tax code, a la VAT tax, and not replace it.

National Sales tax would be great, but they would need to work out something for retired people. They paid their fair share of taxes for an entire working career, only to have the tables turn and pay a heavy share when their income is down but purchases are up.

[Moliere]

That sounds great, but my fear is they will simply ADD a national sales tax to the existing income tax code, a la VAT tax, and not replace it.

Flat tax would be great, but they would need to work out something for retired people. They paid their fair share of taxes for an entire working career, only to have the tables turn and pay a heavy share when their income is down but purchases are up.

You mean those same old people that didn't pay the national sales tax on all goods purchased while raising a family? I doubt my purchases will be higher when I retire as I won't be buying as much food, clothing, sports equipment, gas, etc. These retirees would get a free pass on paying taxes on tax deferred income into their 401ks. That means their investment grew tax free and they would get to pull it out tax free. Seems like they shouldn't be the ones complaining. Of course, this is all wishful thinking since the tax code will never be replaced with a national sales tax.

[NorthwestUteFan]

I meant sales tax, you are right.

I can't imagine the gubmint would allow untaxed 401k-type vehicles to go on untaxed at the drawout phase. They would come up with some sort of 'recaptured investment profits' tax.

I know many retired people who buy a motor home, go on expensive trips, buy toys, etc. Many of them have more actual disposable income than they did when raising kids, paying mortgage, etc., although the actual gross dollar amount is quite a bit lower.

They would finally get to be on the beneficial side of the tax curve (low income taxes due to decreased income), only to have to pay a high burden on purchases. FWIW most of the NST ideas I have seen exclude the tax on food purchases.

I guess my point is they wouldn't be able to flip a switch and change out the entire tax code with a different system.

I also think a simple flat tax with no deductions and no loopholes could be made to work. However this will deprive the elected officials (of all parties) of several strong built-in constituencies and they will no longer be able to pander for votes.