(See this post for update – legislation repealed!)
Reporting requirements for 1099s will soon expand dramatically. From the Journal of Accountancy: “(b)eginning Jan. 1, 2012, virtually all payments by a trade or business aggregating $600 or more to any single vendor during any calendar year will have to be reported at the end of each calendar year to the vendor and to the IRS on Form 1099. Vendors include almost anyone a trade or business pays in the course of doing business, other than its employees whose compensation is already reported on Forms W-2.” – the full article is available online.
Currently, you need to send a 1099-misc to vendors who are unincorporated and were paid more than $600 per year. The general rule of thumb is this covers independent contractors. (Also covers all attorneys, but that is a side issue for this discussion.)
The new requirement will require a 1099-misc to every vendor. Think in terms of your electric bill, all the contractors working on your remodeling project, the big box store where you get your office supplies, and the on-line vendor who provided all your new computers. This covers almost all your costs other than employee compensation. If you are thinking that will be a lot of 1099s, you are quite right.
How the IRS writes the implementing regulations may give some relief. I have read comments that the IRS is likely to exclude any purchases made through credit cards. (think of identifying every hotel and airline that all your staff used for travel and charged on each of their credit cards to picture the scope of this rule.)
As awareness of this issue has grown, it also became a political issue in Washington. It is very possible there will be some change from the Congress.
Keep you eyes open to the issue. This will take a lot of work in 2011 to be ready for the new reporting for purchases in 2012.
UDPATE! This legislation was repealed on 4-14-11. See post here for update.