These days, the tax gap is a significant issue that can have big effects on micro businesses like us.  The government would like nothing better than to implement more requirements on us.

Currently the tax gap is estimated at $353 billion.  Most of it is due to sole proprietors not reporting cash income accurately.  Some suggested solutions are:

  • Requiring a business to fill out a 1099-Misc for every contractor they use.  Currently you are only required to do this for those that you do more than $600 in business with.
  • Increase audits on small businesses.
  • Breaking out income by cash, credit card, and check payments.
  • Including a checkbox that states the business has complied and filed 1099-Misc forms for its contractors.

Source: NASE Washington Watch, “A Closer Look At Tax Gap Proposals,” February 22, 2007.