OK, you can probably guess that I’m a fan of health care reform. What I’m not a fan of, though, is putting an unreasonable paperwork burden on small businesses and small corporations, and exposing those entities to identity theft.
Here is the CNN article on the health care bill’s Section 9006. In essence: a little-known addition to the health care bill did two things, and they are major: If you spend more than $600 at any vendor for anything (goods or services– doesn’t matter if the vendor is a corporation like Kinko’s or an individual freelancer), you will issue a 1099 to that vendor.
Most of the coverage for small businesses has been about how this means small businesses will have to issue hundreds of 1099s to entities, like corporations, which are already obligated to report their taxes anyway.
But the coverage doesn’t discuss how this essentially removes all advantages to having an S-Corporation. An S-Corp is a corporation in which there is only one shareholder. Mortaine Publications is an S-Corp. Although corporations enjoy some liability protection, the reality is that if the shareholder of an S-Corp screws up, they’re going to be held personally liable. How do I know this? I know this because if I apply for any credit or open a bank account under my corporate name, the bank demands my personal information, social security number, etc. They wouldn’t need that if I weren’t on the line.
But I have always said that one advantage to a client considering hiring me is that, at the end of the year, they don’t have to file a 1099 because I’m a corporation. I’ve paid handsomely in corporate taxes and filing fees for that privilege. And now, in addition to giving me the added burden of having to issue a 1099 to Apple the next time I replace my computer, I will also no longer have that little bit of advantage in saying “and if you hire me, you won’t have any extra paperwork to do!”
The identity theft issue comes in with the fact that, when you issue a 1099 to a vendor, you have to have their Tax ID #. Now, a tax ID is a number the government gives you so you don’t have to give out your social security number to clients. However, the reality of the situation is that your Tax ID is tied to your SSN, and if someone has one, they can probably find out the other.
Way to go, Washington. You just exposed every small business owner to identity theft.
There is no longer any advantage or protection for freelancers. Quick, everyone– find a corporate job (perhaps filling out tax forms)…. oh, wait. There are none.