These are relatively new forms and it’s important to make certain that you don’t accidentally double report income on your taxes because of it.
These network payment companies have to send 1099Ks to businesses with more than $20,000 in annual sales and more than 200 transactions in a year.
The form is called Merchant Card and Third Party Network Payments. The 1099-K form is sent to out by the end of January each year.
This is the form will be used by the IRS to verify your reported gross receipts or sales from business operations.
How Does it Affect Your Taxes?
If you are a sole proprietor and report your business income on Schedule C of the Form 1040, you’ll see a line for entering results from the 1099-K. However, the instructions can be confusing so be careful not to over-report your income.
Corporations, Partnerships and LLCs will also get these forms, so make sure that you understand how to use them on your business tax returns as well.
Don’t Forget Adjustments
When you get a 1099-K report, these numbers are the gross amount of the transactions you’ve made. However, they do not take into account returns, adjustments, merchant fees or refunds.
Keep good documentation on returns and allowances, so you can deduct this from gross receipts. Otherwise, you’ll end up paying more taxes than necessary.
What Happened to the 1099-MISC?
It’s still in use for other types of income reporting. The 1099-K form replaces the 1099-MISC report, at least when it comes to online payments, credit card transactions or any other source of electronic transfer. The 1099-MISC form is still being used, but only to record payments of cash or check.
If by some chance you are sent both 1099-K and 1099-MISC form for the same income, then contact the company to have them issue corrected 1099s.
Why Create a New Tax Form?
The IRS’ strategy is smart—they use this form to keep better track of financial records, and to pressure online sellers and other businesses to accurately report all income.
In the past, there was no way to track all of the online funds coming and going; now they have one that captures millions of transactions.
Follow the instructions on your tax software carefully or get advice from your accountant if needed to correctly report this income.