Update on the New 1099 Reporting Requirements

The Patient Protection and Affordable Care Act included a provision that dramatically changed the 1099 reporting requirements for businesses. Recently Congress passed the 2010 Small Business Jobs Act on September 27, 2010, which further alters the 1099 requirements.

The new law requires that persons/entities receiving rental income from real property to file forms 1099 with the IRS and service providers to reports payments of $600 or more during the year for rental property expenses. This new law takes effect beginning January 1, 2011.

Prior to the Small Business Jobs Act, taxpayers who were not considered active in renting property as a trade or business were exempt from this reporting requirement. Now, all passive investors in rental real estate will be subject to this new requirement.

What happens if you fail to comply? Under audit, all deductions for expenses paid for services: i.e. repairs, landscaping, pool care, etc. may be denied if you fail to issue a 1099 to the service provider.

What does this mean to you?

a. It means that you will need to track your payments by Vendor as well as by Expense Category, beginning next year.

b. You will need to gather address and Taxpayer Identification Numbers for all of your vendors.

c. You will need to issue 1099’s to your vendors by January 31, 2012 for 2011 and you will need to file a copy of those 1099’s with the IRS, along with Form 1096 by February 28, 2012, for 2011.

The Small Business Jobs Act also accelerated the start date for 1099 reporting to Corporations to become effective 1/1/2011 (rather than 1/1/2012, under the 2012 Health Care & Reconciliation Acts enacted back in March 2010). Prior to these law changes, payments to Corporations were exempt from 1099 reporting. If you contracted with a company that was a Corporation (i.e. Inc. or Corp. at the end of the name), then you did not have to track and report payments of $600 or more to these entities. Now, under the new laws, you must report to Corporations as well as all other entities.