Imagine you run a small business or you have a side business and some oddball tax form shows up in the mail. What does it mean to your wallet?
The IRS has contended for years that the self-employed under-report their income by huge amounts. So there’s a new rule that merchant processor like PayPal, StubHub, Amazon and credit card processors must send you a 1099-K.
The 1099-K is also sent to the IRS and shows them the gross revenue you as a small business received by payment card and third-party network transactions.
According to The San Francisco Chronicle, the danger here is that many small businesses using software to do their own taxes might double report by reporting sales and then the 1099-K that was already accounted for in the sales they listed doing their own return online!
You have to account for this income, but it is a headache if you do your own tax forms and bookkeeping. If you don’t account for it, the IRS assumes you didn’t report it at all and a year or two down the road they send you a tax due bill based on their estimate of what you should have had to pay in tax for that year. They’ll try to collect the entire amount of that 1099-K.
If you’re just a little small business trying to get through this, report that income and then for things like merchant fees and various expenses and all that, you report that on the expense side and ultimately reflect a net amount of revenue that you’re subject to tax on for your business.
For bigger companies, like for me with owning my own show, I’ve got a complicated situation with a lot of different revenue streams, so I have a CPA that does tax for me and it’s second nature to them. They know exactly what to do with these forms. But millions of small business owners don’t have the revenue to support having an enrolled agent do your return.
So I recommend that you use software that will help you. TurboTax has a simple explanation that walks you through how to account for a 1099-K and make sure you stay out of trouble with the IRS. Meanwhile, you can learn more about the 1099-K at the IRS website.
Boy, we sure need a simplified tax system!