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1099-K form in your mailbox very soon!
January 31, 2012 - 13:21:30
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January 31, 2012 - 13:21:30
Update on 1099-K Reporting Information
Why did we send our clients a 1099-K?
Those who make payments in settlement of merchant card transactions and third party payment network transactions are required to report those payments to the IRS. 2011 is the first year reporting is required.
What is reported on the 1099-K form?
The gross amount of reportable transactions is reported to the Internal Revenue Service (IRS). Gross means the total dollar amount of aggregate transactions without regard to any credits, charge-backs, fees, cash equivalents, discounts, refunds or any other amounts. The amounts are reported by month and in total.
Where is the information reported?
The information is reported to the IRS, and you the client should receive a copy of the 1099-K filed by us by January 31.
Why is the reporting necessary?
It is required by law. Third-party information has been shown to increase voluntary tax compliance, improve collections and assessments within the IRS.
How does this impact clients like me?
The impact to you could range anywhere from a major headache to a non-event. For 2011 IRS business tax forms include a line for merchant card and third party payments. Essentially, 1099-K recipients will need to reconcile the “gross” amount reported to them to the actual sale amount. This could be very difficult to reconcile. For example, the gross amount of the transaction may include sales tax that was paid as part of the transaction. However, sales tax is not income to the business; it is just a pass-thru that is paid to the state. This is just one example; others include refunds, discounts, tips, etc.
Is there any good news?
Yes, it appears there is a one year reprieve given by the IRS:
The IRS 2011 business return forms say “For 2011, enter-0-“for this line of the return. Specifically the Schedule C, page C-4 instructions state:
"For 2011, you are not required to report income received via merchant card or third party network players, so enter zero on line 1a and report all income, regardless of how it was received, on line 1b."
So what should I do now?
Consult your tax advisor and begin planning for 2012.
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Posted by:
Bonnie
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