The Tax Form You Probably Don't Know About
Hey mogul moms, there's a new tax form in town and it'll be hitting your mailbox soon. It’s the 1099-K, also known as the PayPal 1099 or Amazon 1099. So, what is this form and how does it affect you? Well, back in 2008, Congress supected that the rise of ecommerce selling was causing quite a sizeable tax gap (income earned vs. income reported), as people made money through sources like eBay and Amazon but – perhaps – didn’t report that income. So, Congress began requiring that all credit card and third party processors, such as PayPal and Amazon Payments, issue form 1099-K to people who receive income through them. This form is also sent to the IRS so they can know how much income you made. About 53 million of these forms will be sent out this year, making it the 10th largest tax form in volume during it’s first year in existence! Not everyone who uses credit card or third party processors will receive Form 1099-K. In order to receive it, you:
- Must have made over $20,000 through one credit card or third party processor, such as PayPal or Amazon Payments
- That $20K must have been made through 200 or more transactions
If you don’t meet either one of those criteria, then you won’t get the form in the mail. If you do get it, don't worry too much, as it's easily manageable. The only thing the 1099-K reports is your gross sales made via credit cards and third party processors.Since you pay taxes on your profits (gross sales minus expenses and deductions), it's up to you to report the rest of the story by making sure to track and record all of the expenses associated with your business with a spreadsheet or tools like Freshbooks or Quickbooks. Some of the often overlooked expenses are credit card or PayPal fees, shipping costs, and even returns / refunds (for which the original sale amount will be counted in your 1099-K). All of those ittle things can quickly add up to big things! Don't neglect them. How do you keep your income organized?