Natalie Iwasa , CPA Inc.
Accounting and Tax articles written by Natalie iwasa.New 1099 Reporting Requirements
From the January 2012 Small Business News
By Natalie Iwasa, CPA
Business owners who accept credit card, PayPal or gift card payments will soon see a new form in their mailboxes – Form 1099-K. As with many compliance laws, this requirement was embedded in a law on another issue, i.e., in the Housing Assistance Tax Act of 2008.
Under this law, banks and other third-party settlement organizations are required to report gross amounts paid to each merchant for the year. (There is no reporting requirement, however, if the gross amount does not exceed $20,000 and the total number of transactions is less than 201.)
Charge-backs, credits and fees will not be deducted. According to the Internal Revenue Service (IRS) in its preamble to the treasury regulation that provides additional guidance on the reporting requirements, “The information reported on the return required under these regulations is not intended to be an exact match of the net, taxable, or even the gross income of a payee.”
The intention of the new requirement was to close the “tax gap,” i.e., those businesses that are not reporting all of their income from credit and gift cards. It’s worth noting that gross receipts will be reported on a monthly basis, which the IRS indicates will aid in the reconciliation of transactions for fiscal year payees.
As a result of this new requirement, payments reported on 1099-MISC should not include credit card payments.
It’s often time consuming for small businesses to determine what needs to be reported, as well as when and how to do that reporting. Given the possibility for double reporting on 1099s, it may be worth it for business owners to take the time to compare the totals reported on 1099s they receive with the company’s books.