The requirement to issue 1099s stems from the Health Care Reform Law, and it will require your business to supply a Tax ID number to anyone from whom you buy over $600 in goods or services. For a sole proprietorship, the owner’s social security number is the business’ tax ID number. This will undoubtedly translate into a loss of sales for many freelancers and small businesses who operate on the internet. It will also impact many home based businesses.
As a small business owner, I have no problem working with other small businesses on the net right now because the transaction is straightforward: I request the service or goods, then I pay them either with my credit card, which has fraud protection, or via Paypal. For all I know, they’re not even in this country–even if they say they are.
What if I have to give out my Tax ID number? The pool of people that I would be willing to trust will shrink dramatically. I will most likely stay within my local geographical area for my vendors.
If I choose to do business with anyone on the internet, I may do personal background checks on the owners of the businesses to make sure that they have no prior criminal records.
My brick and mortar business is highly regulated and monitored by federal regulators. I will not take any risk that my identification may be misused and jeopardize my main source of income. The rest is an act of faith that the business owners are ethical.
How many other small businesses owners will also feel the way I do?
Large corporations can easily absorb the cost of the paperwork and the exposure to multiple fraudulent transactions. A small business may never recover from one large loss. Trust and familiarity will become even more important now when doing business.
Aside from the tax ID situation stemming from the 1099 requirement, another source of lost business for freelancers and home based business will be the decisions by other small business owners to restrict the number of vendors that they buy from in order to stay below 250 qualified vendors.
When a business has to issue more than 250 1099s, they are required to file them electronically with the IRS on top of mailing out paper 1099s. Most small business will avoid this expense and hassle by limiting the number of vendors they use in any given year.
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