IRS Form 1099-K
IRS Form 1099-K ensures that small business owners who don't declare all of the revenues they receive via credit cards, debit cards, gift cards and services like Paypal will no longer be able to hide those revenues from the IRS.
In April of 2011, the controversial 1099-K bill was repealed. Read more about the repeal and President Obama's reaction in our news article. The original story and comments regarding the bill are below.
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In the years to come, IRS scrutiny will be more intense for small businesses and entrepreneurs that accept credit cards, debit cards, gift cards, Paypal or similar electronic payments.
Historically, the revenues that small businesses receive through these payment processors have not been readily visible to the IRS.
That's going to change starting in 2011.
Starting in 2011, the gross amount of payment card and third-party network transactions will be recorded on a new IRS form, form 1099-K.
In rolling out the new 1099-K form, the IRS is attempting to improve voluntary tax compliance by business taxpayers.
Currently, the tax system is more of an honor system than most might like to admit. Without visibility into a small business' credit card revenues, the IRS must take the business owners word that they are reporting all taxable revenues.
In lieu of the IRS having access to information about credit card revenues and other electronic payment processing revenues, the IRS only has one tool to combat tax cheats who underreport revenues: an IRS audit. However, this is not a foolproof system because it requires scarce human resources to conduct a thorough IRS audit.
"Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe," said IRS Commissioner Doug Shulman.
On the IRS website, you can view a draft version of new Form 1099K, Merchant Card and Third-Party Payments, which will be used to make these reports.
Want to learn more about this topic? If so, you will enjoy these articles:
Deducting Business-Related Legal Expenses
Interest Rate Used By the IRS To Calculate Penalties
How to Avoid an IRS Audit
Expanded 1099 Reporting Requirements
What's your take on IRS Form 1099-K? Do you think it's good or bad that the IRS is getting access to small business revenue information from payment processors?
Thanks for this information on 1099-K. The IRS should have done this a decade ago. So many firms are not reporting revenues they get through services like Paypal. I pay every dime of taxes I owe and it's time that others step up and do the same.
Hardly a needed form! How pray tell will the IRS ever tie the amounts shown to the small business books? The only ones who'll get "caught" will be the flagrant non filers and if history is any indicator a form won't prompt them to file.
|Allen Bostrom, CPA
I can certainly see both sides of this issue, but tend to agree that it has the potential of uncovering taxable income that no other method has, and in this day of economic turmoil, everyone needs to pay their fair share of taxes. If it would replace the requirement for 1099MISC filing which is an onerous effort for small businesses, it could be a terrific trade-off, and much more complete than what the IRS presently has. If the IRS continues to require both, it will cause duplicate reporting of the same revenue dollars by service businesses that accept credit cards.
First the informant has to secure a written determination for purposes of filing a Form 1099-K. Lack of the written determination will be reflected that the IRS will PRESUME the collection of information to evidence source taxable income. This is another hearsey production to violate privacy.
There is not such item as "fair share" in taxation. The Form 1099-K is simply another progressive political trick to control the wealth of Americans.
I own an insurance agency and have a big problem with this. Some of my companies do not offer credit card payment options and I have a third party service that allows me to take the customers payment and the insurance company sweeps my account for the payment. I do not earn money from the credit cards transactions. I receive a 1099 from the insurance compnay. Ex: $100 payment = $10 commission. Based on 1099k, I would have to pay tax on $100 plus the $10 1099 I receive from the insurance company. I do not sell a commodity. In fact, I eat the processing fees.
"Fair share" of taxes? I already pay my "fair share" of taxes...so much, in fact, that my family is constantly strapped for money. The government needs to get off our backs, not make another dip into our wallets.
Pay cash under the table. It's what I'm going to start doing.
Why is the government entitled to even more of the money from people who work to hand out to those who don't want to?
Besides, with the statement that federal authorities won't process ICE detainees from Arizona, law doesn't matter anymore. Stop obeying laws, because the government isn't.
I foresee A LOT of businesses moving away from taking credit and debit cards for payments...cash is on its way back into style.
About time, I know so many people who sell on ebay and don't report their income. With the new 1099 M requirement in 2012 it will hopefully cut down on the false deductions.
The real hitch will be getting companies like staples to complete a W-9 I don't see them just having a preprinted stack to hand out at the front door.
Replace the total income tax system with the progressive consumption tax - the FairTax. That will remove this compliance burden ($300 to $500 billion) from business (big and small) and make all our lives so much simpler and fair.
Cash should have never gone out of style.. I swear by it.. I'd have no problem with taxes, if the government didn't abuse it and use it to fund programs like FDA, Pharmacuticals, expanded salaries, ect..
I sell one or two things a year on ebay. I'm usually paid through paypal. Does this mean that they government will try to tax this? If that is the case, using ebay will become more trouble than it is worth for me.
Clearly it is optimal to have a system which encourages compliance and discourages fraud and underreporting.
However, compliance with the impending 1099-K has me very concerned and I did not learn about this until well after the cutoff date for submitting public comments.
Please consider this, quoted from the IRS Commissioner's prepared remarks to the American Payroll Association in May of 2010:
"Beginning in 2012, payment processors will be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year. This will help improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete. Let me dive down a little deeper into how this new law will benefit the tax system.
Imagine a business. At the end of the year, a merchant bank will send that business a 1099 reporting the dollar figure from credit and debit card purchases made by customers at his or her establishment. An identical information document is also sent to the IRS.
When the owner or tax practitioner fills out the business’ tax return, they will segregate the credit/debit card sales from cash sales….and this new report will make it easier to do so. At this point, the IRS can see if the credit card dollar figure reported on the tax return matches the bank’s information return, and also see if the amount of revenue from credit cards makes sense in the context of firm's overall business.
The information we receive is an important window into underreporting. It can also help us better understand tax compliance and trends in different industry sectors."
How many of your clients have accounting records which segregate their gross revenue accounts between credit card sales and other sales, in order to comply with separating it out on the 1120, 1065, etc? Some do, but most don't.
So, you might say, take gross sales, enter the total 1099-K amount on the line of the 1120, 1065, Sch C, Sch E, whatever, for credit card sales and then enter the difference between that amount and gross sales as the amount for cash sales.
Sounds easy enough. Trouble is, the amounts received on credit cards likely includes amounts that are something other than sales -
First example - sales tax. Oh just extrapolate, you might say. Not so easy. Many clients sell in different jurisdictions, sales tax rates change during the year, and some sales are exempt from sales tax (e.g. wholesale, out of state, food, etc). That info is on the state sales tax returns - but again, that's not segregated between credit cards and regular sales.
Lots of other non-revenue transactions also get charged on credit cards, such as security deposits, vehicle licenses when purchasing a car, insurance premiums (as noted by one poster above)etc etc.
If this goes thru, this will be the nightmare before the storm if the next piece of 1099 requirements goes into effect when each and every item will be 1099'd. This is not intended to replace the sweeping 1099 changes from the PPA, it is in addition.
I'm done whining. Thank you for listening.
The 1099-K is not intended for use in accounting in any way. It is intended as intimidation. Period. I recommend that everyone ignore it. It proves NOTHING. Let me see how many audits this generates. I predict: not many. This is a gun in which a flag comes out of the barrel, unfurls to reveal the word: BANG! Clearly, I'm not impressed.
I'm sure glad Obama's interested in making things easier for business. Not everyone can be employed by the government, or is he too thick to realize that?
I for one hope it makes everyone that sells on E-Bay pay taxes. As there's so many on there underselling products. Because they have no over head and pay no taxes. If it does this I'm all for it. As we have license to sell products along with paying our local state and fed taxes. Then the overhead. But those on E-Bay can under sell us on the same products that I buy wholesale and they make a better profit. It's not fair. Hope it gets them the same as it does the legal company's trying to make a living.
If everyone was honest in paying their fair share of taxes we would not need this sort of form.
Casual ebay sellers probably don't owe any tax. If they are selling stuff out of their attic its probably being sold at a loss. Even IRS admits this. Or used to. But if they do a good housecleaning they will make their $600 limit and get a 1099 anyway. How do they prove what their stuff cost 10 years ago? Do you save all your receipts? Multiply this case by the number of people who sell their own property. How many millions of people will ignore the new form or file incorrectly? Will the IRS audit the whole country?
This only applies to people or businesses who receive in a calendar year gross sales exceeding $20,000 and there are more than 200 transactions and the payment was paid by the buyer with a credit card, debit card or some other third party means (like PayPal). Clearly, anyone who makes this much from sales is in some kind of business and isn't just selling some old China from Grandma's attic.
|Mom & Pop
This is another intrusion into our privacy, and unfortunately a further expansion of a convoluted tax code.
I honestly am having a hard time not being negative. I do have a prediction; just think what they will do when they can really track this information with more advance technology. Deduct income taxes at the time of each transaction? Require book keeping being online so they can track your records and match them to sales in real time? Swipe your bank account if they feel you didn't report correctly? Oh wait, they can do that already right?
The only reason a few very large countries don't do this already is because they don't have the capability. The great irony is that a capitalistic, free (well kind of free) market, country like ours will develop the technology and sell it to them. Unfortunately our government would begin using it too.
Someone on this trail is blaming Obama for this. Just a little research and you can find out that George Bush signed this into law July 2008.
I just figured out the the manufacturing business that I own will have to increase 1099 issuance from about 15 to 600 forms. Error rate is about 15% which will generate 60 erroneous forms. It takes us about an hour of paperwork to correct, so this adds 60 hours of extra work. Then add the W9 forms we will have to collect each year. So the IRS is going to be able to collect more tax dollars as a result of this flood. A friend of mine who is in the translation business didn't file tax returns nor paid tax for six years--yet he had a huge stack of 1099s in his file. Did they catch this obvious cheat. No!!! Thank you Obama and congress for making my life even harder. Throw the bums out now!
There seems to be a need for more clarity and efficiency with the 1099-K. For example, on eBay, I sell sports tickets. I also use StubHub. In both instances, I use PayPal to collect payment from my auctions and Stubhub sales. I have, and always have, made accurate reporting to the IRS.
Here's the issue I have...I've received notification from both Stubhub and PayPal that they will be issuing me 1099-K starting tax year 2011. My concern is that, because StubHub uses PayPal to send me payments, that I will have my StubHub income double-reported to the IRS (once on the StubHub 1099-K and again on the PayPal 1099-K). So far, neither PayPal nor StubHub has offered me any assurance that this won't happen.
BTW...I can't believe so many people on here are criticizing the government, IRS, and/or Obama for this. You people do realize that this isn't a new tax, right? This is merely the IRS taking measures to ensure a massive loophole for tax evasion that has been open for the last 15 years (since eBay/PayPal were formed) gets a lot smaller. I think it's safe to say that the people on here criticizing Obama and the government for merely enforcing the tax code are either people who abused the lack of enforcement for eBay income, and/or people who are so partisan they use any opportunity they can to bash Obama and the government. Either way, get a life!
Pete above is bang-on with his assessment. This will level the playing field for people like him and I who run legit businesses on eBay and pay our fair share of taxes, but have to compete with people who don't.
While this is an attempt to get an existing tax. It will force companies to upgrade software and additional time to process new special forms instead of the usual forms. Companies will only pass on the cost to consumers. Thanks to a government that doesn't give a crap about its people! Flame away, but it's the truth. Get used to it.
Bring it on. Get the last few drops of blood before the corpse starts decaying. Then old drac can fly off to another country and drain its blood.
The 1099-K is issued for $20k in processing or 200 transactions. Just use multiple processors and stay under the limit.
I say get rid of ALL income tax and tax all goods/services/etc. That is the only fair way to collect tax. Everyone pays as they go. Why should you have to pay more tax just because you earn more?
I think they should impose a flat rate tax like over seas. You pay a certain amount. Prob somewhere around 28% on anything you buy. At the time of purchase. No paying income tax at the end of the year. And they can keep track of that for the most part. Anybody hiding any money pays there income tax when they spend it. Less paperwork too if you ask me.
All this 1099 for everybody who buys over $600 from you is going to cause so much paperwork. If its a single purchase thats one thing. But I have alot of customers that might spend $70 today. $35 in 2 months, $125 6 months later. If it adds up to over 600 in a year they want me to keep track of all this. I cant afford to spend tens of thousands of dollars setting up quickbooks or something like that to work for me. Its me, my mom and my sister. None of the family is stealing anything so I dont need to keep track of each item.
The Government already collects their money at the post office. People with $20,000 worth of income on Ebay are already paying $2000 of that money to the post office. Now they have to produce a exact record of what they already paid the government or face having to pay taxes on that money. They also pay another $2,000 to Ebay and Paypal. Out of the $14,000 they pay business expenses and buy inventory. Now they have to keep a exact record of that or again pay taxes on it. This is nothing more then harrassment of the small business man to make it easier for the big business. They do not stimulate the economy they make it more difficult for the little guy to make a living. Only it does not really even help the big business because they simply are not able nor do they want to provide the service and products that the little business man can provide for his customers. IF the Feds want to stimulate the economy and create jobs and growth they need to quit harassing the small business man. They need to realize not everyone wants to work for big business and some people like to be self employed or work for small business.
How does this affect people who sell as vendors in flea markets? Or does it? What if the flea market only deals with cash and does not accept credit cards? I hate having yard sales, so just sell items at a flea market. We pay rent for space and then a commission. They only take cash as payment, not any type of credit or debit cards. Am I going to end up with one of these? Most of what I sell are items that I personally owned or were inherited from a packrat relative. But, I do also pick up things at yard sales and thrift stores that I think can be resold at a profit. Probably 50% of sales are my items and 50% are items I purchased for resale. So, I guess my question is will this affect just ebay sellers or will it also affect all types of resale vendors? (I don't have sales over $20,000 in a year, but I do have more than 200 sales.)
I guess we're back to taking cash and money orders for all ebay transactions and making trips to cash the money orders. Screw the IRS, they've already stolen enough money from me over the past 23 years of my working life, and they couldn't catch a bad guy tax cheat standing in their office if you handed him to them.
|smarter than you
perhaps if people had a brain they would figure out the big boys at ebay now don't pay tax because they don't live in the USA. And do not have to pay your taxes. So this will not hurt them. They will flurish : ) Only the USA will start to ripple more since this new tax will cost millions. Oh wait it benefits all your tax folks so they'll make all the money. haha
This was NOT brought about by our current pres. It was begun several years ago but just now brought into effect. It is a pain and my business, as well as many others in town, will no longer be accepting credit cards because of it. Unfortunately our contract with said processor doesn't expire until July 1! It will hurt the credit card industry too! That really breaks my heart!! We have always reported all of our income regardless of where it came from and will not be subjected to further harrassment from the IRS.
Let's be serious here a minute people. Ebay was never meant to be for businesses to sell items. It was an online flea market hense why people who dislike it call it fleabay. Income should never have gotten to the point of tens of thousands of dollars. Unless you are selling off cars or auto parts accessories. Even then however it should be pretty much a one and done unless you are a dealer or business. That being said many did see it as an opportunity to sell from their store shelves and inventory without having to pay for and monitor a website. Kudos to them but then they must pay their taxes because they ARE A BUSINESS making BUSINESS SIZE PROFITS. This issue should not be a big deal for 90% of ebayers of amazons or ioffers etc. I have sold various items since 2003 and have never come anywhere close to 1K let alone 10 or 20K with 200 payments accepted and don't need to file. Not only that but most "stuff" people sell they are taking some kind of loss anyway. A TV that you don't want any more retail of say $200 and 99% of the time you aren't realizing anywhere close to that when you sell it 5 years from being new. So for the IRS it would be a loss and you are doing it as a hobby/flea market type thing. Otherwise they would OWE YOU MONEY on reporting the loss of money realized versus value for that TV. I think more people should be concerned with the other part of the 1099 situation. If they sell $600 worth of anything that isn't online they will have to report that regardless if it's a hobby, business or just cleaning out the attic.
This is going to force taxes paid on selling PERSONAL property. PERSONAL property has never ever been taxed - until now! So if I buy a set of golf clubs and sell you my old set via ebay/paypal I will have to pay income tax on the sale of my golf clubs!
Alot of people seem worried that they have to pay taxes on the total amount reported.
The form is just a way to facilitate small business owners in adding the paypal payment in with their regular "check" payments from clients...and that the IRS is aware of such transactions.
it DOES NOT mean that if I lend someone $20000 to a relative that that relative has to pay taxes on it....it WILL however mean that if that $20000 was spread out among 200 payments and not JUST THE ONE, and involved a bunch of different emails attached to the transaction then theres a good chance a BUSINESS is being operated and the IRS will know it.
and someone who is doing $20,000 worth of transactions over 200 payments SHOULD be keeping track of their shipping fees, expenses, etc and treating it like a business.
THE MAIN REASON unemployment is so high and the economy is in the toilet is that people arent looking at ebay, and paypal as viable business operations but as SIDE ACTIVITIES and relying on their regular jobs to pay taxes.
Quit your day job, and INCREASE what you are doing on EBAY and with PAYPAL.
BE AN ENTREPRENEUR
and learn to appreciate things like this and in the end
THE TAX BENEFITS of moves like this and being a small business owner far out weight the 20% percentage they take from your 40 hour day job.
Next, they will want to tax yard sales, garage sales, Craigslist purchases, cheapcycle purchases, etc.! The government needs to stop trying to be so controlling and give people a break!