Are New Regulations Burdensome? Yes, But Needed To Reduce The Tax Gap
By Gary Molinaro | July 22nd, 2010 | Category: Perspective | No Comments »I’m sure I’ll take some grief from many of you out there — particularly in today’s Tea Party climate — but I’m one of those people who rarely resents paying taxes.
I work hard for my money and am relatively prudent about holding on to as much of it as possible. For the most part over the past couple of decades or so, with the support and encouragement of my spouse, I have managed debt and spending well. I pretty much look for value in what I spend my money on — getting the most bang for the buck.
Maybe that is why I usually don’t get too worked up about tax issues. For the most part — despite the tendency for government to waste money way too often — I think what we get for our tax dollars is very underappreciated. Too often, we are generally spoiled and undervalue such things as roads, bridges, and water treatment and the value we get from such government functionality.
That doesn’t preclude due diligence when it comes to how the taxes are collected, how the money is spent and how the recordkeeping for those taxing rules is dictated. That is the case with the pending implementation of new regulations, which begin at the start of 2012.
According to a CNNMoney.com report, the Internal Revenue Service has begun the process of figuring out how to turn new regs into actual rules for taxpayers, requiring any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services during a year. That flood of paperwork will be generated from the estimated 40 million taxpayers subject to the new requirement, including 26 million who run sole proprietorships, according to a report released this week by National Taxpayer Advocate Nina Olson.
The new rules, aimed at reducing the “tax gap” between what individuals and businesses really owe and what they actually pay, could help the federal government recover some of the estimated $300 billion it loses from tax underpayment. The expanded reporting requirements, slipped into the landmark health care reform bill passed in March, are an attempt to create a paper trail of 1099s exposing business-to-business payments that might otherwise stay below the IRS radar.
But, this could be a real burden for smaller companies. The article said that the Pennsylvania business networking organization SMC Business Council surveyed its members and found that they currently average 10 filings a year of 1099 forms. The new rules would push that average to more than 200 filings per year for a typical small business, the industry group estimates.
There is some relief in sight, though. The IRS plans to exempt transactions made through credit and debit cards. A separate IRS reporting requirement kicks in next year that will cover card transactions and help the tax man spot unreported payments made through those channels. But, the SMC Business Council sees little relief there, since exempting credit card transactions would affect less than 10 percent of his members’ reporting requirements.
How this affects our particular businesses will be interesting to see. Small shops and parts operations could have a tough time implementing this process, since they often do much of their own bookkeeping. For other larger players in our market — those who track all their spending via computerized programs — it is just one more regulatory hoop to jump through.
And, from my misguided perspective, it just puts more businesses in compliance with the tax code and more taxpayers carrying the burden that they should be carrying. I guess I just see it as a measure of fairness when it comes to paying our taxes.
In any case, the old “death and taxes” saw comes to mind — and complaining about neither will make you any happier.
