Avalanche Warning: Federal Tax Law Could Bury Freelancers in New 1099s

by Jeff Jimerson  |  June 6th, 2010
Business & Finance


 

 
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YIKES.


I just stumbled upon an article from CNN Money called Health Care Law’s Massive, Hidden Tax Charge. The author reveals a tiny detail in the new federal healthcare overhaul bill—recently signed into law by Pres. Obama—that will affect anyone who’s self-employed. Whether you’re a freelance web designer or drive your own ice cream truck, this law impacts you.


Freelancers are familiar with the current way of doing things: Federal law requires businesses to give a 1099 form to any freelancer/contractor paid for services exceeding $600. At the end of the year, the freelancer then tallies up their 1099s in order to report their income to the government.


What the new law says: Begining on January 1, 2012, 1099 forms will no longer be just for services. They will be required for reporting goods, too.


How this affects you: If you’re an independent contractor and plan to spend more than $600 on say a new camera or computer—or even presumably plane tickets for business travel—the new law requires you send a 1099 to the store/company you did business with. According to the article, “if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099.”


The Senate Finance Committee responsible for the coming gush of new paperwork apparently thought this would be a good way to find hidden taxpayer dollars to help pay for the massive healthcare bill. (Funny thing, I don’t recall small business owners asking for that, either.)


Fortunately there’s still time to strip the new 1099 requirements from the healthcare bill before this portion of the law kicks in. Here’s hoping Congress will do just that.


Jeff Jimerson

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Reader comments (7)

 

This won’t be the last “little” surprise we find in this law. I hope for the sake of freelancers and small businesses, it’s repealed altogether.


Matt Riopelle | June 07, 2010

I don’t get where the extra tax money comes from?

When I send apple a 1099 for buying a mac? Apple already pays taxes on my income.. are they just trying to better track that I spent money? Seems like an odd honor system.

I think the IRS should just have our bank account access so that they can just taxes us ever year with out forms, I think it would help a lot. and its green because we would save a lot of paper!


Ron | June 07, 2010

Sheesh, This doesn’t even make sense for a health care bill. So it only counts if it is over $600, which is good. If I had to gather Tax IDs for every one of my business expenses, I would do more administration than photography…


Danielle Anthony | June 07, 2010

p.s. I think this would hurt “Tim’s Computer Shack”

Thanks for the heads up Jeff.
Systems now set for DefCon 5


Ron | June 07, 2010

Ron: The IRS probably won’t squeeze any more tax money out of Apple with this new law, but smaller businesses, used goods and other things that have fallen through the cracks would theoretically be captured with more paperwork for everyone. Watch out Tim… your freelance customers are now going to make sure you pay your taxes.

Danielle: The way I understand it is the $600 minimum is a total spent with one business for the tax year. Meaning, ten $60 purchases at Staples would require a 1099.


Jeff Jimerson | June 07, 2010

Bill Witt (local CPA and Lawyer) also echoed this sentiment at a recent entrepreneur’s forum mtg.

Crazy, and seems illogical. I can’t imagine the resources required to enforce this each year…


Andy | June 07, 2010

Can they even enforce this? There’s no way this makes it through the cracks.


Jason | June 07, 2010
 


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