• First, 1099s will have to be issued for goods as well as services.  In the past, you did not have to issue a 1099 for a purchase of goods such as office supplies, materials, or equipment.
• Second, 1099s will have to be issued to corporations, partnerships, LLCs – basically everyone you purchase from.  In the past, 1099s were used to report payments to individuals and certain partnerships.

Combined, this means that small businesses will now be sending out literally millions of 1099 forms and will be responsible for keeping track of every one of these throughout the tax year. Beginning in 2012, businesses will be required to issue 1099 tax forms not just to freelancers and contract employees, but to ANY individual or corporation from which a business buys more than $600 in goods or services.  Some examples:

• Homebuilders will have to issue a 1099 to the building material supplier for the materials used in the home.
• Have the airconditioning repaired at the office and you have to send a 1099 to the incorporated vendor.
• Purchase raw materials for manufacturing from a corporation and you have to send a 1099.

This means that in addition to the 1099s that you already prepare, you will also be preparing a flood of these for your office supply provider, office cleaner, caterer, accountant, computer hardware supplier, office furniture vendor, and on and on and on. The bill will drastically alter tax reporting by highlighting payments that have typically gone unreported – the idea is to increase government revenues by helping the IRS to account for millions of these payments.  The IRS has stated it may use its regulatory authority to allow credit card purchases to be exempt from these rules; however, the recordkeeping may get even harder if this is implemented.

The next pain of this reform is that you will also receive a flood of 1099s coming to you.  With the IRS efile mandate, you will have to enter all of these 1099s into your tax return in order for them to be matched by the IRS.  Count on more time to prepare your return and more inquiry letters from the IRS questioning the matching discrepancies.

Of course, there is a silver lining in this cloud for the accounting profession.  The days of keeping your books on a spreadsheet (or paper sack) will fast be disappearing.  In order to comply with these rules, all businesses will need some sort of accounting system with the ability to track payment amounts, payment types, 1099 status, and EIN numbers.  You will also need someone to oversee the accounting to make sure it is up to date and accurate.  The cost of noncompliance currently starts at $50 per 1099 that should have been issued and increases depending on the size of the business and the delay in delivering the form.  You will need to start planning for the implementation of your required information systems in 2011 to be ready to track payments in 2012 when the law goes into effect.

Small businesses and lobbyists have started to push back hard against this change, realizing the profound impact it will have on their operations and accounting procedures. And the Congress is listening; two bills have been introduced which would repeal this provision and if passed, small business will be spared another regulatory hurtle which could threaten to drown us all under a new flood of paperwork.  We are not likely to see any movement on this issue until the new Congress is in session.

Davis & Langford, Certified Public Accountants, have experienced Quickbooks Pro Advisors on staff to asisst in implementing accounting procedures to make the transition as painless as possible.  We can be reached at www.DavisLangford.com.

1. First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

For more assistance  with starting and operating a new business, contact Davis & Langford CPA at 678-889-9548.

President Obama Signing the Healthcare Bill Into Law - March 23, 2010

In late March 2010, President Obama signed into law the new health care legislation.  The legislation will affect virtually every individual in one way or another and will significantly impact the preparation of tax returns in the future.  The provisions take effect over a period of years and are categorized by the year they become effective.  Some of the provisions include additional taxes to offset the cost of the health care benefits included in the legislation for lower-income individuals. 

The following is an overview of the provisions that apply to individual taxpayers and small businesses.   

2009
o  Student Loan Forgiveness for Health Professionals – Excludes student loan debt forgiveness from income for certain medical professionals who work in health professional shortage areas.

o  Investment Credit for Therapeutic Discovery Projects – A small company investment tax credit for expenses incurred for qualified investments in qualifying therapeutic discovery projects.

2010
o  Insurance for Uninsured Americans with Pre-Existing Conditions – A Pre-Existing Condition Insurance Plan will provide new coverage options to individuals who have been uninsured for at least six months because of a pre-existing condition.

o  Expanding Coverage for Early Retirees – A program that provides reimbursement to sponsors of participating employment-based plans for a portion of the cost of health benefits for early retirees and their spouses, surviving spouses, and dependents.

o  Providing Free Preventive Care – New plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, co-pay or coinsurance.

o  Pre-Existing Condition Exclusions for Children Under Age 19 – For new plans and existing group plans, the new law includes rules to prevent insurance companies from denying coverage to children under the age of 19 due to a pre-existing condition.

o  Elimination of Arbitrary Rescission of Coverage – Insurance companies may no longer retroactively cancel policies because of an “unintentional” mistake on paperwork.

o  Lifetime Limits are Phased Out – Effective for all policies issued after September 23, 2010 and those renewing after this date, there can no longer be lifetime limits placed on health care plans.

o  Annual Dollar Limits – There is a phase out of annual dollar expenditure limits on health plans over the next three years until 2014 when the Affordable Care Act bans them for most plans.

o  Tanning Services Excise Tax – A new 10% excise tax is imposed on the amount paid for any indoor tanning service.

o  Excludable Medical Reimbursements for Older Children – An income exclusion for reimbursements of medical care expenses by an employer-provided accident or health plan is extended to any child of an employee who hasn’t attained age 27.

o  Self-Employed Health Insurance Deduction – Self-employed individuals may include in their tax-deductible health insurance children who have not attained age 27.

o  Tax Credits for Small Employers Offering Health Coverage – Provides a tax credit for an eligible small employer for non-elective contributions to purchase health insurance for its employees.

2011
o  Employer W-2 Reporting Responsibilities – Employers will be required to disclose the aggregate cost of employer-sponsored health coverage to their employees on Form W-2.
   
o  Increased Tax on Nonqualifying HSA or Archer MSA Distributions – The additional tax for making non-medical withdrawals from Health Savings Plans and Archer MSA plans is increased to 20%.

o  Over-the-Counter Medication Restriction for Employer Plans – Over-the-counter medications will no longer qualify for reimbursement.

o  Small Employer Simple Cafeteria Plans – Small employers may provide employees with a “simple cafeteria plan.”

2012
O  Information Reporting Required for Payments to Corporations – Businesses that pay any amount greater than $600 during the year to non-tax-exempt corporate providers of property and services will have to file an information report with each provider and with IRS.

2013
o  Additional Hospital Insurance Tax for High-Income Taxpayers – The Hospital Insurance (HI) tax rate (currently at 1.45%) would be increased by 0.9 percentage points on incomes over a threshold.

o  Surtax on Unearned Income for High-Income Taxpayers – A 3.8% surtax is imposed on net investment income of high-income individuals, estates, and trusts. 

o  Employer Health FLEX-Spending Plan Contributions Limited – Medical reimbursements from flexible spending plans is limited to $2,500.

o  Medical Itemized Deductions Limited – The AGI threshold percentage for claiming itemized medical expenses is increased from 7.5% to 10%.

o  Compensation Deduction Limit for Health Insurance Issuers – Limits companies’ deduction for certain employees’ compensation.

2014
o  Mandatory Heath Insurance Overview – Many of the provisions of the Health Care Legislation are linked to the mandate that everyone becomes insured.  The chart provides an overview of how these provisions interact to achieve that goal.

o  American Health Benefit Exchanges – By 2014, each state must establish an exchange to help individuals and small employers obtain coverage. 

o  Penalty For Not Being Insured – Non-exempt U.S. citizens and legal resident taxpayers will be penalized for failing to maintain at the least the minimum essential health coverage.

o  Premium Assistance Credit – Tax credits will be available for low-income individuals who obtain health insurance coverage with a qualified health plan (QHP) through an “Exchange”.

o  Free Choice Vouchers – Employers who offer minimum essential coverage through an eligible employer-sponsored plan and are paying a portion of that coverage will be required to offer an equivalent value voucher, allowing a qualified employee the option of purchasing coverage through the insurance exchange. 

o  Large Employer Health Coverage Excise Tax – Large employers would be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state exchange and qualified for either tax credits or a cost-sharing subsidy.

2018
o  Excise Tax on High-Cost Employer-Sponsored Health Coverage – There will be a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan where the premiums exceed certain limits.

Reference Links

• Davis & Langford CPA – Further information on each topic on the website or call us for a personal consultation.
• CCH Coverage of Health Care Reform - Downloadable PDF coverage