U.S. Business Owners May Have to Follow Complicated New Tax Rules in Aftermath of Congressional Legislation

Heads up business owners: you may have to change the way to file taxes soon. Business owners are going to have to file millions more tax forms in order to comply with recent Congressional legislation regarding tax reporting requirements. The Internal Revenue Service is working on the new reporting method, which is supposed to begin in 2012.

Many business owners, including the 26 million sole proprietor business owners across the U.S. (not including DBA businesses), are already struggling to keep up with IRS tax deadlines and stay compliant with IRS reporting requirements. The new legislation and impending tax reporting changes leaves many wondering just how much more work will be required of them.

According to the new legislation, small business owners will need to show additional proof of their business tax-deductible expenses. In fact, business owners may have to issue 1099 forms to each of the vendors from whom they purchase more than $600 worth of goods or services per year. This means that, in addition to requiring 1099 forms from service vendors, business owners will also need to supply 1099 forms from each product vendor; a standard purchase receipt is not going to be enough.

The goal of the new tax law is to hold businesses more accountable for reporting their purchases to the IRS. Currently, business owners fail to pay an estimated $300 billion in taxes each year. The new tax reporting requirements will create a stronger paper trail of business-to-business transactions that might otherwise go unreported.

In 2010, sole proprietors, which include many small business owners, some franchise owners, and freelancers, must file an average of 1099 forms each year-an accounting burden for many. However, with the new legislation, sole proprietors may have to file more than 200 1099 forms each year, leading many sole proprietors to wonder if they can handle the additional workload.

In order to make purchases and tax reporting more manageable, businesses may begin limiting their number of vendors and consolidating vendors, which may decrease opportunities for burgeoning small businesses to break into the market and result in limited incentives to shop for the best prices for business products and services.

This new legislation isn't the only thing law changing these days. Check out a law that positively impacts America's service personnel, including a 90 year-old World War II veteran.

Reference:

http://money.cnn.com/2010/07/09/smallbusiness/irs_1099_flood/