Piano World Home Page Forums Our Most Popular Forums Piano Teachers Forum New USA tax reporting requirement

Folks, I just heard this on CNBC and have confirmed it by a Google search.

The Obama medical finance bill which passed recently has a provision which hits small businesses like ours very hard. Beginning Jan 1, 2012, you will have to report all transactions to the IRS which are $600 or above. There will be a special 1099 for this.

We may not suffer as much as other small business, but the sellers are going to have to report the transaction as well, so if you fail to report, it's jail time for you.

Examples might be a new camcorder, a new chair, a used piano, an office computer, or what ever.

Now where's that bottle of wine when I really need it.

Good grief! What's next?

Thanks for passing on the information...

What's next is more and more of the same...when the country voted in a liberal Democrat for president, and a majority of Democrats in both the Senate and House, it automatically and by default voted for higher taxes and bigger government (more control over your life, more forms to fill out, higher taxes to pay for it all, etc, etc).

This is not brain science or rocket surgery. It is, however, how that "Change you can believe in..." works out.

And the added expenses for doing all that paperwork, etc, will ultimately take their toll.

There may be a "Big Pharma" or a "Big Oil", or other mega-rich business conglomerates that have "excessive profits", but there is no such thing as "Big Piano".

Instead, its just little small business people like myself, John, and many others, struggling to stay alive in a rotten economy with a service that is non-essential to life (at least not to everyone; piano lessons are not food, clothing, or shelter), who become the payer-outers.

Um, that seems pretty tame stuff to an Australian small business owner.

However: Do you mean you have to report each transaction individually? With a separate form per transaction? Because that *would* be ridiculous.

And how much tax reporting can you do online?

Here in Australia I need to issue a tax invoice for every amount over $50. But I don't then notify the tax office every time I issue an invoice!! That gets summarised for a quarterly report where I remit the Goods and Services Tax component of the transaction. And this can all be done online.

Hopefully it will help prevent a lot of fraud. I don't have many transactions that exceed $600.

I don't have a problem with it. Heck, it's just good record-keeping. I report any purchases I make for my business and I'm sure the sellers keep track of sales they make. It's called inventory and they have to report the income from the sale anyway. What's the big deal?

You were supposed to report them anyway, it isn't new it's just going to be enforced now.

Like the "use tax" many people choose to ignore.

As an owner of an online store, I am currently only required to collect sales tax in states where I have a nexus (physical location). HOWEVER, the person who purchases from me is supposed to report their purchase in their state and pay the use tax on it.

Eventually they will work out a way of collecting sales taxes nationally, at which point all online stores will have to collect the sales tax regardless of the state (except states with no sales tax, obviously).

I don't have a problem with it (it's only fair, the brick and mortar stores have to collect it) provided it isn't a nightmare to execute.

Well... the tax laws are already so byzantine and indecipherable that this little blip hardly registers on my outrage meter. I don't even try to do my own taxes any more. When I visited the local IRS office to try and get some idea of how to do my own taxes, the woman there actually suggested that life would be easier if I had a job at WalMart. I have to pay someone to calculate how much of my earnings I'm required to pay to the government. Aargh.

But this new little bit doesn't really bother me. I already claim all my business expenses and purchases, so I don't have to pay tax on that money. Of course! What you didn't mention is that you don't have to do any paperwork if you use a credit or debit card for the purchase- only for cash. This is going to have exactly zero effect on my business and book-keeping.

I am generally annoyed by taxes. But I also find it a bit annoying that you (John and Rocket88)are spinning this and taking it as an opportunity for a demagogical political rant.

Oh, well, what's a rant now and then between friends, eh?
John, I'll share that bottle of wine with you, what the heck, let's open another...

Wavelength, you might want to read up a little more on the arguments. From the quick summary of points I've read this will be truly nighmarish for many. Here's an interesting article that discusses some details:

http://blog.pappastax.com/index.php/2010/06/01/repeal-the-new-1099-law/

Although I an incorporated at this time I haven't actually made any business purchases yet but I am dreading the day that I do...

Regards,
Ryan

Actually, this is a rather simple business discussion about taxes and additional burdens put on piano teachers and other small businesses by the Obama administration.

It is a response to the OP's post, which simply reported a business fact that will impact every piano teacher in America, at least those who report their taxes.

Thus, this is not "spin" or a "demalogical political rant," unless you happen to be on the other side of the discussion.

And just to clarify a point of government that nobody seemed to learn in middle school:

The Executive Branch does not make laws.

The Legislative Branch makes laws.

The President can provide leadership and steer things in a certain direction, but Bills are authored by legislators. (That is, in fact, the very definition of what a legislator does.)

It may be called Obamacare by the press, but it was written and voted on by your local representatives and state senators.

I thought it always existed -- and as far as I know, it's always been enforced too, albeit randomly and sporadically.

Is there any indication it'll be anything more than random and sporadic even now???

In other words......what is supposedly going to be different than it ever was?

I wish people would get clear on this whole thing before they start sweating over it or hurling political barbs too much.....

P.S. [edit] I hadn't noticed the part about having to file a 1099. But it looks to me like we need clarification of what that would be required for -- not to mention seeing whether it will actually wind up in the regulations at all.

I have never issued a 1099 for goods, only for services. From what I read, the 1099 for goods is new. What 1099 form are you supposed to issue for buying a $700 computer from someone? Yes, that person's income is supposed to be reported. But the buyer hasn't, as far as I know, had to issue them a 1099 before. I believe individuals *are* supposed to issue 1099's for in-home child care workers, or cleaning help, if they've been paid $600+ in the course of a year, but those are services. It may be that you're supposed to report your internet sales, but the 1099 form for buyers is new, as far as I can tell.

It is not for an individual transaction over $600, it is, as are 1099's for contractors now, for $600 total transactions in a year. So if you buy $601 worth of office supplies from Office Max, $50 at a time, over the course of a year, you'd have to issue them a 1099.

What. A. Night. Mare.

Cathy

Good point. The fact is today that more than 65% of American (small) business people are guilty of tax evasion. It pays to cheat and steal on one's taxes because people think (correctly) that the chances that they will be caught and fined or sent to jail is very small. Imagine if 65% of your students didn't pay their bills what shape your studio would be in. That is one big reason why the US suffers from such a huge deficit.

It would be better if the US were to join the rest of the developed world not only in offering health care to all its citizens but also by implementing a Value Added Tax instead of all the byzantine, regressive sales and use taxes. Then piano teachers would get a tax REFUND on all the goods and services they buy related to their studio.

It is fascinating to see that today small business people such as piano teachers have more freedom, a much easier burden, better income, more social mobility and a better lifestyle in the European Social Democracies than in the so-called (self-proclaimed) land of the free.

I didn't read anything that said it was only for cash purchases. Do you have a link? The 1099 effect in 2012 has nothing to do with whether you deduct all your business expenses. It has to do with whether you issue to the corporation that sold merchandise to you a form that says the total amount you bought from them over the year, if it's $600+. You do not, currently, have to send them a 1099. In 2012, you will have to.

That's what I read, anyway.

Cathy

The rules for this information collection have not been formulated yet. The IRS will be putting them together.

If you do make all purchases by credit card, you will only be paying the credit card company, so perhaps that may be the only company that you need to send a 1099 to. The card company may need to send 1099s to each of your suppliers.

It is another example of how, when money gets tight, suddenly the price of paper clips becomes more important than other expenses, like the mortgage.

It is quite fun to follow emotion-filled, rationality-challenged debates like this one in the Excited States of America. The fact is that even if you were required to generate a 1099 for every $300 of business that you do with another entity, with a $99 piece of PC accounting software (or probably free on the internet by 2012) and with no more than 10 minutes per week typing in your accounting system your tiny amount of business transactions as a piano teacher (which you already should be doing anyway to meet the requirements of being an independent business person), this potential requirement can be met automatically and painlessly.

In the developed country peers outside of the US, individuals and businesses in this century are not writing checks, not filling out forms and not sending pieces of paper back and forth. Payments are sent automatically by bank transfer, tax returns etc. are all done on line and communication with the tax service and with vendors and banks, etc. is electronic. Sending the 1099 data could also be just as simple in the US as reporting requirements are done elsewhere, and if things are not allowed to continue to decay towards banana republic status, they probably will be by 2012.

Being an independent businessperson has different risks and rewards than being an employee.
It also has different freedoms and burdens, such as needing to account for your business transactions like a professional.
If you don't or can't meet the requirements for being an independent business person, then you should take a job as an employee with someone who is capable of meeting the requirements as an adult.

America finally has an adult President and administration again.
Now it is time for her citizens to start acting like adults too.

Two Observations, from the Perspective of Someone who Doesn't Know Anything About the Way the US Tax System works (but I thought I'd make them anyway):

Observation 1.
As Minniemay says, isn't this record-keeping which you do anyway? If you just have to go through your records at tax time and issue these thingies to various people I'm not sure I see it as such a huge imposition, if you have all the figures there in front of you. With the records I keep I could do it now if I had to. As long as the form is simple

Observation 2. (and this isn't directed at anyone here, but rather reflects some political discussion Down Under)
I am continually surprised at how many people apparently consider Tax to be by definition A Bad Thing, but whinge all the time about how the government should do a better job of funding health, hospitals, transport, education, the arts, etc etc etc.
Hmmm......

currawong +1gazillion to everything you said.....

I nearly wrote a post saying - but tax is how you pay for all the good stuff that makes a society a better place in which to live. And we ALL benefit from kids getting a better education, from everyone getting better health care, from roads being well-maintained, from... well, everything that taxes pay for.

And I found that as much as it is a pain to meet my quarterly tax reporting obligations by the due date (next one is July 28!!!) I'm then so well-organised with my paper work that my annual tax return is the simplest possible matter. Further, I know exactly what I've earned, what I've spent, and whether my business is actually providing any value for my effort!

This is the financial equivalent of a piano student whinging about having to learn scales (what.a.nightmare!!!) or to practice on a regular basis.....