If it’s not already enough of a headache keeping up with business expenses come tax time, small businesses that accept credit cards (both online and in brick-and-mortar locations) now have another element to add to the tax equation. It’s called the 1099K form. Aimed at addressing the fact that the IRS claims it has trouble tracking small businesses’ sales income, the 1099K form will be submitted by credit card processing companies and checked against the sales income we small businesses file.
If you didn’t do at least $20,000 in credit card sales and at least 200 transactions in 2011, don’t worry; the 1099K won’t be required. That’s the threshold the IRS is looking for with this new regulation.
What You Need to Do
For the most part, the burden lies on the credit card and payment processing companies to file the actual document. Early in 2012, you will receive a copy of the 1099K filed by any payment company you use. It is your responsibility, however, to ensure that your sales records match what your 1099K says you sold. It’s always been essential to keep solid accounting records, but it’s even more important now.
Scott Berger, CPA and tax principal at the accounting firm Kaufman, Rossin & Co., says:
“The biggest foreseeable problem is for those businesses that accept debit cards for payment and allow for cash back. They will need to accurately keep track of the cash back provided to their customers so that it can be subtracted from their gross receipts. This way the IRS will be able to reconcile their actual sales and revenue.”
It’s also a good idea to take a look at what your credit card company says you took in for the year to make sure there were no errors on their part.
One possible issue that comes to my mind is: what if I received a loan from my mother through PayPal? Will that be considered income for my business? What about PayPal fees? Will those be removed from the equation?
Also, it’s my understanding that this $20,000-plus in transactions is across the board. So if you used a physical credit card processing machine for $10,000 in sales, then sold $5,000 on eBay and $5,000 on Etsy, you are still required to have 1099Ks from each of these third parties, as long as you completed 200 or more transactions for the year.