1099 filings expand greatly starting in 2012: the penalties for failing to file | Hacker News Reader

1099 filings expand greatly starting in 2012: the penalties for failing to file

startupcompanylawblog.com

65 pointsgrellas41 comments

It seems like a major identity-theft liability to distribute your EIN or SSN to everybody who's bought $600 worth of goods or services. If you're doing consulting work, you should have incorporated and therefore have an EIN (which I suspect is more secure than SSN). But if not, you're going to be giving your SSN out to lots of people.

Based on the average net-profit of identity theft, would it be worthwhile for scammers to "invest" $600 to buy a product from somebody who they suspect hasn't incorporated, just to get their SSN?

You don't need to incorporate to get an EIN. I got one for my sole proprietor LLC. I'm not sure about other states, but in Oregon it was a single page LLC application and a $55 fee. (It's now $100, I believe.) After getting the LLC registered with the state, I sent in the EIN form to the IRS, and a few weeks later an IRS guy called me to confirm a few of the line items. That was it.

I've created a PDF of my W-9 and have it available upon customer request. I strongly oppose the 1099-INT reporting requirement, but unless it changes there are a few things that will make it a little less painful.

(BTW, despite the stereotypes, the guy from the IRS was really friendly and helpful.)

I have literally never dealt with anyone at the IRS who was anything but friendly and helpful.

Same here. I've had both mail and phone contact with them on a few different occasions, related to contract paperwork technicalities over the years, and they were always pretty nice, clear, reasonable, honestly trying to be helpful, etc. Granted, I try to be exactly those same things to them, so perhaps that helps.

There's been at least one attempt to reverse the 1099 reporting changes: http://www.govtrack.us/congress/bill.xpd?bill=h111-5982

Each representative that voted no on this should get an earful. With no riders on the bill, a no-vote there is inexcusable (especially given the composition of the votes, which flies directly in the face of certain rhetoric).

edit: Correction, this isn't the bill I thought it was. It does have a couple of extra provisions (to which votes against should also be infuriating for most). There's at least one other bill out there that was singularly focused on reverting the 1099 requirement change, which was also voted down.

In addition to the insane reporting burden this will add, I think important privacy implications of this change are being overlooked. Spreading SSNs and EINs as wide and far as this bill requires will certainly result in increased identity theft.

If we don't get them to fix this in an election year, it will never get fixed unfortunately.

I might argue that we should work "in an election year" voting OUT the idiots who thought this was a good idea.

That's not how legislation works. I don't understand why this wound up in the ACA, but it seems plainly peripheral, and anyone voting against the ACA on the basis of this legislative oddity would have earned far more wrath than they're getting now for having passed it.

It's not going to get fixed now because the Republicans benefit more from the impression that government doesn't work than they do by solving any problems. It'll get fixed at the eleventh hour.

So if I want to buy a nice cappuccino machine for the office to congratulate some hard work, 1099? A few chairs for the office, 1099? License an application for better productivity, 1099? An order of printer paper, pens, pencils, staples, paper clips, and pads, 1099?

Stupid bean counters. I bet you're still using SLOC to measure productivity...

Remember to get their name and address, as well EIN / SSN so that you can actually fill out the fields in the 1099 form. And even if it's below $600, you _might_ buy from them before the year-end, so you need to record the amount in case the total aggregate amount for the year goes above $600.

This requirement is just plainly insane, but at least IRS also agrees that it's insane ( http://www.irs.gov/newsroom/article/0,,id=225270,00.html )

I feel that this requirement is only there so that the data can be collected for a coming VAT in the US. They can't push such unpopular legislation through at once.

That doesn't make sense for me. First, US lawmakers don't really think that far ahead. But more tellingly, this isn't a universal requirement - it just applies to business transactions that can't otherwise be audited.

I think it's no more than what it appears to be: a ham-handed way to shore up the traceability of money flow.

And why does the government need to trace money flow?

The better to tax it, my dear. Presumably. I'm not saying I agree with it - I don't. Just that it's a smaller leap of faith in my opinion to believe that's the motivation.

This law really does look like a red tape apocalypse. For most of us working on startups and small enterprises, I'm thinking it will boil down to two choices:

1) For major purchases (things that have to be over $600) centralise all expenditure through s single or few suppliers likely to do all the paperwork for you (as suggested by protomyth).

2) For everything else, forget about loyalty and spread your transactions over different suppliers to avoid hitting the threshold and not have to worry about it.

Online services look like one of the easiest things to deal with - Amazon AWS and Rackspace Cloud and anything where you spend over $50/month is going to get hit by this. But at least you won't be digging out and counting up receipt totals by supplier like your starbucks dockets.

Thank the accounting gods for the comments saying credit card transactions aren't included.

> 2) For everything else, forget about loyalty and spread your transactions over different suppliers to avoid hitting the threshold and not have to worry about it.

This doesn't help, as several suppliers can just be fronts of the same company. To avoid the prison sentence, you have to do full accounting on every transaction.

How about the government start making it EASIER to start and run a business?

This is just the type of "friction" we don't need in an anemic economic recovery.

>the number of transactions captured may increase as it becomes more likely that minor expenditures will aggregate to at least $600 and trigger the reporting requirement.

$12 a week for 50 weeks, or $50 a month for 12 months, breaches the reporting requirement. It will be a royal pain to keep track of everything. The IRS is saying there will be no new requirement if you are paying with a credit card though.

What if you buy starbucks coffee 3 times a week, during work, making it a total of $600 of goods. Not only do I have to keep track of that, but I have to get starbuck's tax id.

(of course thats assuming I'm having my company write it off, which I would)

I work at various coffee shops at least 2-3 times a week usually for a full day. I would easily have to file for minimum 3 different coffee shops a year. This bill is absolutely ridiculous.

Does anyone know how this works if the purchases are made by an individual and then some day eventually (hopefully) reimbursed by their company? eg if you have a startup and are bootstrapping and paying for everything yourself?

If you're an individual, the same law applies if you count it as a business expense. The usual disclaimers apply: I'm not a lawyer or an accountant, I'm just a sole proprietor. There's no legal distinction between being a sole proprietor with a daytime job and one without - income from your sole proprietor activity is taxed on Schedule SE for self-employment tax (Social Security and Medicare) and Schedule C for income tax from a business - and that's where this applies.

The "I'm not really a business" rule is really, really not one the IRS believes in.

This is one of those laws that really needs to be harped about after this election. It is an absolute killer for small businesses (both as a consumer and supplier). The only people I see benefiting from this are accountants and Staples / Office Max (get all your stuff from us and we will do the paperwork).

Why after - vote out everyone who voted for this crap.

Sorry for the down vote, small buttons on phone. I agree strongly with your comment. These guys push off votes over and over to a point they don't get anything done. The biggest bunch of procrastinators ever.

So.. there has to be a way to benefit from this. Where is the startup startup dedicated to providing 1099s? The major problem is that all new versions of quickbooks, if Quicken has any sense, will have an online link to a proprietary database with all this information.

A feature isn't a startup, but...

Reposting a comment from an earlier Hacker News thread on this issue:

The good news is that purchases made with a credit or debit card will be exempt from this requirement. However this requirement is still likely to be a huge pain for me at least because I use PayPal for a lot of vendors for totral purchases over $600 in a year.

The IRS is accepting comments on this requirement at http://www.irs.gov/newsroom/article/0,,id=225029,00.html

What an amazing, and obvious, handout to the credit card companies. Unbelievable.

I suspect the implications are credit card transactions can be audited by the IRS anyway.

I figured that too, still a huge political windfall for them.

I see stuff like this and it makes me redouble my commitment to groups like fixcongressfirst.org.

I posted this in the last thread about this - it's a different way of looking at the issue: http://www.taxgirl.com/new-rules-about-forms-1099-are-causin...

The picture in that article reminds me of the scene from the movie "Brazil" where Harry Tuttle is swallowed up in paper and disappears. That movie is sadly prescient.

I think this weekend I'm going to pass a law amending my own personal tax system that requires that any entity wanting more than $500 from me, for any reason, has to fill out, say, a 20 page form (the details of which I'll specify next week sometime.)

There's a lot to be said for individuals being sovereign. I think we are anyway. But I have followed a "choose your battles" approach in life so far. Perhaps one day that will change.

Software development can be done anywhere. The age of needing VC for a rack full of servers is over. Apps and Internet services can be sold from anywhere.

Why locate in high bureaucracy and regulation regions?

The only advantage I see is being able to go to meet ups of peers, etc.

Would you rather work for your startup and have to live invdowntown LA or SF? Or would you rather live in the phillapenes or Thailand on a beach?

I would rather live in the mountains of California.

I can deal with the taxes and bureaucracy.

Business runs on the numbers, not on the scenery.

My numbers are great, thanks :)

I credit all the great hiking, skiing, and fresh air with helping to incubate our three person start-up. It's worth mentioning that we make GPS software for the outdoors, so our location is very conducive to testing.

Come on over to Colorado... the tax situation is quite a bit more sane and we have..well all of that:)

Do you have a personal limit on what you would tolerate? What tax rate might prompt you to avoid the taxes, for example by moving?

Spoken like someone whose never been mugged. Ok, bad joke, what I'm trying to say is, California is bankrupt. The taxes and bureaucracy you have now will (in my opinion) pale in comparison to what you're going to have to deal with in even a years time.

Reply on news.ycombinator.com