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What Does the 1099-K Form Do?

By John V

Republish: EasyPublish™
Published: 27Feb2012
Word count: 463
Viewed: 73 time(s)

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Congress dropped the 1099-K form bomb not too long ago, although it had been on their minds since 2008. Worried that small merchants and those accepting online payments, primarily through credit cards, using payment processors and gateways like Ebay and Amazon, were under-representing their incomes the government implemented a number of new tax policies embodied in the 1099K and other 1099s. They are supposed to help the government get a clearer understanding of money flowing to these merchants and by ensuring more honest on tax forms, close the "tax gap" that the government believes exists in this sector. Being that 2011 tax returns are the first in which this form is necessary, many merchants will need small business tax preparation help with several steps necessary to file taxes in the wake of the 1099K.

The 1099-K form works in a fairly simple manner. The major payment processors are required to keep records of how many transactions their customers conduct and of the value of those sales. If they expect a customer to reach $20,000 in 200 transaction, they gather the necessary information, which includes a SSN and can include an TIN if the customer is incorporated. They submit all this data to the IRS as part of their tax returns, and they send a 1099-K to every client who approached that limit. This form then enables the small merchants and people with online stores to appropriately fill out the newly amended normal tax forms with the amount of business they did in online transfers. In other words, this form and its framework create a lot more paperwork for payment processors, small merchants, and the IRS, in order to establish redundant checks on the volume of payment flows.

Although its purpose is simple and the way the government intends this form to meet that goal is clear, completing tax forms and dealing with the 1099-K accurately is not going to be easy for many merchants. For one thing, the amounts on the 1099-K will include all the money transferred from the payment processor, regardless of it was actual income for the merchant. So for example, anyone selling anything in states like California would have to collect sales tax on their business, and if most customers pay by credit card, that would be included on the 1099-K. So along with accurately accounting for regular business deductions, such a merchant has to have accounted for that difference between actual income and payments processed, and then accurately put that data into tax forms.

With the 1099-K form, most small business owners and online retailers will be better off finding a free and intuitive tax preparation service that can perform the kind of minute, complicated accounting tasks necessary to make filing tax returns in April easy and successful.

1099-K Form Has a Specific Purpose and Needs to Be Taken Seriously by the Small Business Owners That It Will Trouble Most.

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