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How to Know What a Paypal 1099-K Will Mean for Your Company

By John V

Republish: EasyPublish™
Published: 28Feb2012
Word count: 449
Viewed: 59 time(s)

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Many merchants are worried that receiving something like a Paypal 1099-K form from one or more of their online payment processors or marketplaces will have a major impact on their business, dramatically interfering with their profitability by using up valuable hours of the owners time to track payment data in new ways. Or they worry that regardless of the quality of 1099-K instructions that they get, they will end up paying far higher taxes on their income now because their company will look like it's making more money than it actually is.

While it would be nice to go along with many experts hoping to tamp down on these concerns and suggest the change won't be that big or cumbersome for businesses that have been keeping up with their books, the unfortunate reality is that documenting online payments and transactions separately will be a lot of extra work. This is especially true for small businesses, where one or two people shoulder all the work, so making accounting and filing taxes twice as time consuming is a major change in how time will have to be allocated. The simple truth is that for a certain segment of businesses, the 1099-K will have a significant impact. Specifically, those most likely to be impacted will:

• Receive annual online payments that total more than 200 worth $20,000;

• And not have dedicated tax or accounting staff.

That's it. In other words, most small business owners with relevant online sales will be hit by this tax. Small businesses in this situation don't have the manpower to manually track every transaction made through an online portal, record it effectively including by noting any portion of the payment received that doesn't contribute to final revenue, such as state sales tax. Add to that the problems with recording refunds and the impact of fraud and the personnel resources of small businesses will end up stretched even thinner. Some view this as an extra tax on small businesses because the very act of hitting $20,000 in online payments will create an expensive amount of extra work.

There's no way for businesses in this situation to avoid being impacted. However, there is at least one mitigating factor. The amounts reported, whether on a Paypal 1099-K, or from Amazon, or from credit card companies, won't impact taxes due for 2011. This year is the grace period during which the government is just collecting information. That gives merchants time to find better accounting tools so that they can figure out how to affordably perform their accounting in this new environment to be ready for the following year's taxes.

If You Get a Paypal 1099-K or Receive the Form from Any Other Processer, the New Tax Form Will Impact Your Small Business.

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