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The Small Business Jobs and Credit Act Will Bring Record-Keeping Headaches

The recent small business stimulous package has some good news and bad features.

Most immediate goal was adding incentives to provide loans and tax breaks for smaller firms. The bill also adds new reporting requirements that kick in this coming January.  Combined with other reporting requirements set in motion in earlier bills, they represent a new series of reporting requirements that if not modified will add considerably to small business paper work. 

The Small Business Jobs and Credit Act that was signed into law by President Obama in September cuts taxes and creates a $30 billion loan fund to help small businesses. But the law will also create some record-keeping headaches beginning in 2011.  For small businesses that happen to be landlords, the law will expand the requirement to file IRS Form 1099s to include payments of $600 or more per payee for rental-property expenses.

The law beginning in 2011 also will increase the dollar amount of fines for failure by any type of business to file 1099s or to file them on time.

The maximum fine per instance for intentional failure to file a 1099 will increase to $250 from the current $100.  Fines for late filing will increase to $30 from the current $15 for 30 days late, to $60 from the current 30 for more than 30 days but before Aug. 1, and to $100 from the current $50 for filing on or after Aug. 1.  In addition, the maximum cumulative dollar amounts per calendar year will rise to $1.5 million from $250,000 for intentional failure to file, to $250,000 from $70,000 for up to 30 days late, and to $500,000 from $150,000 for between 30 days late and Aug. 1.

Still more 1099 headaches are in store beginning in 2012.  That's when expanded filing requirements kick in under the healthcare-reform law signed in March.  Under that provision of the Patient Protection and Affordable Care Act, businesses will have to file a 1099 for every person, company or entity from whom $600 or more in services or property is purchased. The current 1099 regulations require the reporting of earnings to the IRS on workers who make more than $600 in a calendar year but aren’t considered an employee of that company.  Usually, these are for contract workers who intermittently perform small jobs for a company.

Some critics of the healthcare-reform act, including blogger Brian Ward, say its 1099 provision will cost jobs and will cost the small-business owner thousands of dollars for record-keeping and accounting fees to ensure compliance.  A recent study by the Small Business Administration, Ward points out, found that duirng a 15-year period, small businesses generated 65% of new net jobs.  "With unemployment inching toward 10%, one would hope that those in Congress would create policies to help the greatest job-creating machine in America be successful," Ward says.

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