Earlier, form 1099 misc was used by individual contractors, freelancers, consultants to report any extra income earned by them from a company or an individual who hired them. However from 2012 onwards, the 1099 regulations are drastically going to change as the filing of form 1099 will not only be confined to freelancers and consultants but will also have to be filed by all businesses and business transactions over $600. In short, starting 2011 any business that does more than $600 in business with any vendor will be required to submit a 1099 form. Eg: if a business purchases office furniture worth $1500 from an interior company, then they would have to report the same by filing form 1099 to IRS, something which was not required earlier. Hence, this will drastically increase the paper work cost of businesses, leading to an increase in their variable costs thus an increase in prices of their goods and services to combat the loss.
Furthermore, the vast amount of costly paper work has been introduced by the changed provisions in health reform law. The bill makes two key changes to how 1099s are used. First, it expands their range by using 1099 forms to track payments not only for services but also for goods. Secondly, it requires that 1099s be issued not just to individuals, but also to corporations.
Now, let’s focus on the part of how to prepare yourself for the coming changes in 1099 laws. Firstly, start requesting that each of your vendors, large and small, complete IRS Form W-9 for your records. This will give you the legal name, address and Tax Identification Number (EIN or SSN) for your vendor. This is the information that you will need in order to complete a 1099-MISC each January.
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