New IRS 1099 Rules Set to Hit Charities Hard
It seems like the hits just keep on coming. First it was the Form 990-N rule changes that will cost a yet-to-be-determined number of nonprofits their tax exemption. Now organizations are waking up to the news that the controversial new Health Care Law is bringing more draconian rule changes their way…namely the new requirements regarding Form 1099-MISC set to hit after next year.
So what are the new rules and why are they so bad? We’ll explain that, but let’s first take a look at what the current rules are.
Under current law, a business is required to give a Form 1099-MISC to any independent contractor who is paid $600 or greater in a calendar year. An independent contractor is defined as a non-corporate business entity, such as an sole proprietor or partnership. For most businesses, this doesn’t create much of a burden. That’s all about to change…
Starting after 2011, businesses will be required to provide a Form 1099-MISC to all vendors and service providers who are paid greater than $600. You read that correctly! We’re talking Wal-Mart, Office Max, the local gas station…all vendors! The burden this will put on small business, both for-profit and nonprofit, will be tremendous. Imagine having to get the tax ID number and address of every company you do business with. Then you must make sure you track every penny you spend with them, complete a Form 1099-MISC and try to get it to where it is supposed to go. It’s going to be nuts! To make matters worse, the IRS’s guidance on the matter is rather confusing regarding certain types of vendors.
The best case scenario is a public outcry that will lead to changes in the rules. Keep in mind that, just like the Form 990-N rule changes, this is a matter of law. Therefore, any future changes must be legislative. If you are sick and tired of seeing unrealistic burdens put on small business, including your nonprofit, let your elected officials know about it. Enough is enough! Let your voice be heard.
And, if they won’t hear it now, let them hear it this coming November!