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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.
Third-party networks like eBay, Paypal and Etsy will also be filing the documents on behalf of their sellers.
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.
Tax time is quickly approaching and always serves as a reminder of how complex the process can be for businesses. It’s important to have a financial solution that can be trusted to provide accurate information.
Kip Marlow
Susan, thanks for keeping us informed. The tail is wagging the dog. When does it all stop?
@John–
Agreed. It’s always good to have an update.
@Kip–
It will never stop! 🙂
Susan
Joel Libava
Thanks for the info.
I hope that I’m able to file one of these in 2012!
The Franchise King®
Marna Friedman
Susan,
Thanks for the info. So if I paid contractors with a credit card, but the amount total was under $20K, do I just process a regular 1099-MISC for them? And if I have other contractors under $20K total, can I do a regular total 1099-MISC for them?
Thanks in advance for your response.
Marna
Susan Payton
Marna it’s my understanding your credit card company will send you these forms. And it’s $20,000 across the board, not per contractor. So for all contractors totaling over $20k, you’d file this form. If its under you would use the regular 1099-MISC.
Marina Boatwright
I’m confused with the 1099k reconciliation. In 2012, will I reconcile the 1099K received to our actual monthly merchant credit card statements or will I have to reconcile merchant card totals as reported on the 1099K with our business’s yearly gross receipts or sales.
Marina–
I believe your merchant service will send you a copy of the 1099K, so you can use that to make sure your receipts are accurate.
Sheba
When we receive a 1099-K form this year 2012, the information there is for year 2011, when I call to update over the phone, do I need a reprint of an updated 1099-K form with 2011 information, do I need it for tax filing for tax year 2011?
Sheba–
What you’ll get this year will be for all of 2011. You should get a copy of it from your merchant services, who should have an accurate detail of your transactions. Please refer to irs.gov for more info.
Susan