If you are a business owner or service provider of any sorts, you should be familiar with the 1099 form, especially if you are an independent contractor. Starting this year in 2012, any gross amount of income that you received in 2011, that was settled by a third party network for example eBay’s PayPal, Google Wallet, or Amazon will now be reported on a new tax form called the 1099-K Merchant Card and Third Party Payments form. This new 1099-K tax form has been considered a way for the IRS to flag upcoming audits.
How will I know if I will receive a 1099-K this year? There is a de minimis standard exemption for reporting, which is $20,000 or less in gross income or the number of transactions which cannot exceed 200. It’s important that business owners understand the IRS definition of gross amount, which is the total dollar amount of aggregate transactions without regard to any credits, charge-backs, fees, cash equivalents, discounts, refunds or any other amounts. Keep in mind credits “gross amount” is strictly the amount paid before any, charge-backs, fees, cash equivalents, discounts, and refunds are deducted. Don’t forget to talk to your tax professional about how the charge-backs, fees, cash equivalents, discounts, and refunds can reduce your taxable income, this will avoid an over statement of your business gross receipts.
Do you feel overwhelmed? Talk to your CPA, Tax Advisor or accountant about how the new 1099-K mandate could affect your business this year. He or she should provide you with strategies on how to handle this maze of new and overwhelming information. Also many online third party network companies such as PayPal, Google or Amazon have provided guidance with this new mandate on their websites as well.
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