Form 1099-K: A Refresher Course

Did you receive a 1099-K form last year? Even if you didn’t, chances are you heard about this new form from PayPal, or Amazon payments, or StubHub, or from debit/credit card processors that was mailed to online sellers all across the country.

Well, the 2012 tax season came and went, and ecommerce business owners dealt with the 1099-K the best they could. But now the 2013 tax season is upon us and 1099-K’s are hitting mailboxes again. And this time the IRS is serious about comparing income reported by online sellers to the amounts on their 1099-K forms.

So whether you need a refresher course on what to do with the 1099-K or this is your first year dealing with the form, we’ll cover what you need to know about the 1099-K. This includes the basic history plus why this year is different than last year!

What is Form 1099-K?

Not to go into too much detail, but a little history can give you an idea why you’re even dealing with this form in the first place. As ecommerce became more of a viable way to make money for businesses, the IRS struggled to keep up. Sellers were making money, but when it came time to collect taxes, not everybody was reporting the income they made.

The government has a vested interest in collecting income tax, and they needed a way to track how much money was moving through online sales. Through legislation, they passed the 1099-K, which is simply a way to track sales through websites like PayPal and Amazon. When you sell product, these sites track them and send you a form showing your sales at the end of the period. This form is the 1099-K. You get a copy for your records… and so does the IRS.

What’s the Purpose of a 1099-K?

As mentioned above, the 1099-K form only has one function: to report how much you made during a certain tax period through online sales. That’s really it! The only information you really need from the form is how much money you made.

The 1099-K doesn’t report any deductions or business expenses you might have taken. And – be warned – it doesn’t take into consideration things like shipping income collected (that you turned around and spent to actually ship the item), refunds, charge backs or other deductions that actually make your income lower than what was reported on the 1099-K.

So why do you even need your 1099-K, especially since you’ve undoubtedly kept great track of all your income and expenses through Outright?

Consider the 1099-K as a gift – it’s a way for you to verify how much money you made through your store. If the numbers match…great! If not, you have the chance to figure out what in the world happened.

What’s Different About 1099-K This Year?

Last year was the first year for the 1099-K. Since this was the first year the IRS had implemented the form, they wisely tested it out first. This year, though, everything is in full swing, and the 1099-K is here to stay.

So what’s different about the process? In truth, not much. There is still a strict restriction on who gets the form. If you made $20,000 or more income through 200 or more transactions,via a payment processor, that payment processor (PayPal, Amazon, credit card merchant, etc.) will send you the form. If you didn’t meet either of those requirements, you don’t get the 1099-K. Also, the form will still come late January/early February.

There is some confusion about how the 1099-K information will be reported. Last year, the info was reported on the Schedule C under “Gross Receipts” with the understanding there would be a specific box for the 1099-K in 2013. However, that does not seem to be the case this year.

What are the Consequences of Ignoring the 1099-K?

The IRS has announced that they will be comparing your total gross receipts with the number reported on your 1099-K. If, for any reason, the number you report is lower than the number on your 1099-K, you could face consequences. These consequences could include anything from a letter from the IRS requesting more information, to an adjustment to your taxes owed, up to an audit.

How Do I Get Help Dealing with Form 1099-K?

If you’re having trouble reconciling your income and the 1099-K, an Outright Plus account can help you. You can also ask your most taxing tax questions in the Outright Community or visit our 1099-K Tax Center.

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