There is a new form that came out this tax season that had a lot of small business owners confused; this is the new 1099-K Form. It is something that has not been seen before and is not fully in effect yet, but will be for the 2012 tax season.
This form will be used by payment settlement entities in place of a 1099-MISC, and therefore you must be sure you are not getting two different forms from the same company, or they may unintentionally be reporting your income to the IRS twice. Independent contractors should still be receiving a 1099-MISC as it was done previously.
So what exactly is on this form?
At first glance it looks similar to a 1099-MISC Form, giving all the basic information
- Filer’s contact information, this would be business that is paying you on behalf of your clients
- Your business’s contact information, including your tax identification number
- Box 1: The amount that was paid to your business throughout the applicable tax year
And here is where the form varies from other 1099s
- Box 2: Merchant category code, this is a code classifying your business according to a system that the payment card industry uses.
- Boxes 5a -5l: January – December payments reported as being received by your business from this Filer. Listing the receipts by month is meant to make it easier to confirm the amounts and verify that your books agree. It is important to note that they do not report if any funds were returned to your customers, and you are responsible for your own system of tracking returns.
There is an exception for de minimis payments, which would be from third party network transactions that total under $20,000 or are less than 200 transactions total for the year; in such cases you may not receive a 1099-K from this entity (but you could still receive a 1099-MISC).
This exception does not apply to payment card transactions. Any amount reported as being paid to your business as a merchant card transaction (such as a debit or credit card) will be reported on a 1099-K form for the year.
With these new regulations, it is even more important than ever to be sure your books are being kept correctly and accurately! If you aren’t tracking your income and expenses properly, how are you going to confirm that others are reporting it to the IRS truthfully? Contact your accountant to verify you are doing everything you need to do to stay informed about your business.