Are You Ready for the 1099-K?
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You may recall from 2012 that the 1099-K, a brand new tax form for online sellers, caused quite a stir.Even the most seasoned online sellers were thrown for a loop when they received an entirely new and unexpected piece of paper in the mail a few months before tax time.Well, the 1099-K didn’t go away, even though some legislators tried to abolish them earlier in the year. Moreover, the 1099-K system we got last year was really just a “test.” There wasn’t even a specific spot on your 1040 to put the information on the 1099-K.2013 will be the first year the 1099-K is really implemented fully into the U.S. tax system, so we thought we would catch you up on the form and why it’s actually a good thing for your business!
The 1099-K
IRS tax form 1099-K is a form that came about due to negligence.You see, the IRS noticed that some online sellers weren’t paying all their taxes or were accidentally misreporting them. We see how this could have happened because at Outright, we're contacted all the time by astonished taxpayers who didn’t realize that their hobby of making a little extra money on eBay or Etsy meant they had to pay taxes on that income.To combat this misreporting (accidental or not), the government passed legislation and instructed the IRS to require that online payment processors like PayPal, Amazon, Google payments, and credit card companies report the payments that their customers received through them. The form they were instructed to use is what we know now as the 1099-K. Payment processors are required to report to the IRS and the online seller, any income that flows through them. This lets both the IRS and the seller know how much tax is owed when it’s time to pay up.What else? Honestly, not much. All the form does is report how much you made through an online payment processor. That’s it! It doesn’t tell you about expenses or anything else to help you with taxes. It also doesn’t take into account refunds, exchanges or other tax deductions that might decrease your tax burden.And, surprise! You may not even get the 1099-K! Even though you’re an online seller or freelancer, only a select few in that community will receive the form in February.To receive the form, you must fit the following criteria:
- Make $20,000 or more in the taxable year
- Make said $20,000 in 200 or more transactions
If you don’t fit both of those criteria, you don’t get the 1099-K. Did you make $20,000 but only 199 transactions? Then no 1099-K for you!
How Can You Use It?
So, I bet you're wondering what in the world the 1099-K is for? If it only reports information you already know (assuming you kept good records), and it doesn’t necessarily make your life any harder, then what’s the point of the form?Well, you'll be happy to know that this new IRS tax form can actually make your life much simpler. While you no doubt keep up to date and accurate records of all your sales throughout the year, many online sellers don’t. They like to live on the edge and add everything up at the last minute. ;)In this case, they could make use of the figure the 1099-K reports to them. You – I mean, they – could use the total as a goal to add up to. If there’s a discrepancy, they can start to figure out where it went wrong.Now, if you're still worried about the form or your taxes in general, try signing up for Outright Plus to get a better idea of how much you'll owe when Uncle Sam comes calling. It's not too late to get your account all set up so you can compare your number to what PayPal (or Amazon, or your credit card processor, or whoever) sends you so you'll be all ready for tax time.Look for the 1099-K form around late January or early February in 2013. After you’re done with it, simply file it away for your records and you’re all done until next year!