New IRS 1099 Requirements
For those of you that are business owners or landlords, this is a must read. There is new regulations for businesses and landlords to file 1099s. This regulation somehow snuck into the health care reform bill.
The way I understand it is that effective Jan 1 2011 all landlords will be required to file a 1099 if they pay a contractor supplier, any individual, or LLC (non corporation) more than $600 in the calendar year. It appears as though credit/debit card transactions are probably exempt from this rule, but it is required for cash and check transactions.
Starting Jan 1 2012 all businesses, sole proprietors, and LLCs will be required to file a 1099 for anyone including corporations in which they pay $600 or more (again with the credit card exemption).
For example, if in 2012 I buy $1000 worth of carpet at Menards (via check), and then I pay my installer $600 cash to install it in a rental property, I would be required to file a 1099 for Menards and for my carpet installer.
This all sounds like a big pain in the butt, doesn’t it! Well, it makes sense why the IRS is doing it. They will generate billions of extra tax dollars since so many people sneak past the current system with cash. The 2012 regulation could soften by the time we get there, but the 2011 regulation is already in effect.
My solution will be to pay for as much as possible on my debit card (run as credit for extra protection). I’m sure I will still have to file a few 1099 for independent contractors that I hire who don’t take credit, but I’m optimistic that it won’t be a terrible burden.