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How The New IRS Form 1099K Impacts Your Tax Return
Source:
auctionbytes.com
- Jan 31, 2012
By Barbara Weltman
EcommerceBytes.com
January 02, 2012
This year, companies that process credit and debit cards as well as third-party network payments such as PayPal, Amazon.com and Google are required to report to merchants and to the IRS the gross amount of the transactions they've processed. If the small business exception, which is fewer than 200 transactions totaling less than $20,000, does not apply to you and you receive Forms 1099-K, be sure to handle them properly on your tax return.
Where to enter amounts from 1099-K
Enter the amounts reported to you on the 1099s on your tax return so that the IRS computers can match up your entries to amounts that have been reported to them. Unfortunately, this year, the tax return is confusing. All of the forms for business returns have a new line for entering amounts from Forms 1099-K. For example, Schedule C of Form 1040 for sole proprietors and one-member limited liability companies has a new line 1a for entering amounts from Forms 1099-K.
However, the IRS has deferred the requirement for reporting 1099-K amounts on the new line. Instructions to all the business returns, including Schedule C of Form 1040, say to enter zero on line designated for reporting amounts from Forms 1099-K, and instead report such amounts, along with other gross receipts, on the line for all gross receipts. Presumably, this is where the IRS computers will be looking for 1099-K transactions.
Don't over-report income
The amounts reported to you on the 1099-Ks are the gross amount of the transactions you've made throughout 2011. They do not take into account any returns, allowances, cash-backs, or other adjustments to transactions. Be sure to take these reductions to gross receipts into account on your return so that you don't over-report income.
Watch for duplicate reporting
If your unincorporated business provides personal services in addition to selling goods, you may receive a Form 1099-MISC to report the payment of services over $600 in the year. This year, the 1099-MISC is to be issued only for the payment of services in cash or by check; 1099-K is to be used for payments by credit card, electronic transfer, etc. However, don't be surprised if you receive a 1099-MISC for the payment of services by credit card; issuers may be confused by the change in reporting requirements this year.
What to do if you receive both 1099s for the same services: Contact the issuer of the 1099-MISC immediately. Have the payor reissue a corrected 1099-MISC to eliminate any payments that were made to you by a payment means reported on 1099-K.
Get help
Confused? Who isn't! Your best bet is to work with a knowledgeable tax advisor to make sure you correctly report only the income you actually earned and not one penny more!
Category: IRS
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