Why You Should Not Discard Your Form 1099-K

 

If you get a Form 1099-K in 2013, don’t ignore it. The new form records payments received in 2012 by credit card companies or through third-party networks such as Amazon, PayPal, and Google. This added income reporting mechanism was created as part of the Housing Assistance Tax Act of 2008 and is finally taking effect for the 2012 tax year. This form was issued in 2012 for income received in 2011; but taxpayers were not required to report the amount on their returns. Beginning in 2012 payment processors will be required to submit the 1099-K forms for sellers with more the $20,000 in annual sales and more than 200 transactions in a year.

The IRS is scrutinizing the accuracy of possible under-reporting of income and the concern that some small businesses do not report all of their revenue. Previously, the Internal Revenue Service had to take taxpayers’ word that all income was reported because the agency didn’t have access to credit card or online payment details. The 1099-K changes that entirely.

There will be a line item on your return whether you file a schedule C, a corporate return or a partnership return for the amount reported on the 1099-K. Small business owners will be required to break out sales by the amounts reported on the 1099-K separately from the payments received from other sources such as cash, check or barter income.

The Form 1099-K shows your gross sales. “Gross sales” includes all of your selling transactions, meaning the totals of all of your sales. Fees such as eBay and PayPal fees are not taken out of the gross sales number; refunds and returns are also not deducted from your gross sales number. Shipping revenue is also included in that number. That’s why the number may seem a bit higher than you were expecting, so it is important to keep track of all of your expenses so that you may reduce the sales number reported on the form.

The IRS needs to close the “tax gap” so keep track of your business and please contact your tax preparer if you have any questions.

 

About the author:

Gail Lennox,

Gail A. Lennox has over twenty-five years of experience in public accounting and is also a Certified QuickBooks ProAdvisor.

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