While many controversial provisions of the health care reform bill passed by Congress in March were loudly debated in the media, there's one provision with enormous implications for companies that got little attention. Currently, businesses are required to report payments to a vendor for business-related services over $600 via the Form 1099-Misc. However, the Senate Finance Committee buried a rule deep within the thousands of pages of legislation to offset costs, requiring businesses to report payments of more than $600 a year to any vendor, beginning in 2012.
The major change is that, in addition to services, companies will need to track and report expenditures to every single vendor they use for goods, from paperclips to cell phones. Any vendor receiving more than $600 from a company will require a 1099-Misc to be sent to the IRS by that company.
In a recent article, Bloomberg Business Week noted that the IRS says approximately 85 million 1099-Misc forms are filed annually. That number could skyrocket in 2012, given that "the National Small Business Association estimates that the average company will have to file 95 of the forms under the measure, up from fewer than 20 today."
If you are a tax preparer, you should advise your clients as early as possible to begin tracking their expenditures. The accounting systems at most large corporations should be able to extract detailed accounts payable data to assist them in determining which vendors will require them to file a form. However, many small businesses may be caught off guard by the new rule, making it difficult to compile the data they need to prepare their forms.
As a CPA, you are the first line of defense for clients when new regulations such as these become a record keeping nightmare. By preparing clients and proactively assisting them in collecting the data they need, you'll be an invaluable ally when they face the IRS each year.
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