As the New Year approaches, many small businesses are in store for a rude awakening. The 1099-K is here and is the latest reporting requirement of the Irs that is designed to eliminate unreported revenue for small businesses that use credit cards.
The new tax laws for issuing 1099's will create an unprecedented turn in the way credit card revenue is reported to the Irs. "Payment community Entities," such as credit card companies, PayPal, banks, and some third-party processors will now be reporting deposits made to taxpayers. With 2010 estimates of unreported revenue exceeding trillion dollars, the Irs is thought about to re-capture a valuable part of the unreported "non-cash" dollars straight through the 1099-K. Much of this added tax will be collected from small businesses selling straight through e-commerce portals such as E-Bay or Amazon. Thus, for the e-commerce business that has been using one of these mediums for business yet not reporting all of their income, requiring the reporting of all gross credit card revenue for 2011 will be the year of reckoning.
Printable Calendars 2011
An example of a business changing its policies to comply with the new Irs rules is PayPal. PayPal modified its User agreement this year due to new Irs reporting requirements. The following verbiage has been added to Section 4.7 (Taxes): "You riposte that in beginning in 2011, PayPal will article to the Internal revenue aid the total amount of the payments you receive each calendar year into all the Accounts you own if you(i) receive more than ,000, and (ii) receive more than 200 payments, in that calendar year."
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The elimination of a part of the estimated 5 to 5 million dollars that fellowships evade each year in taxes is just the beginning of the Irs goals. Here are 10 things every taxpayers should know about complying with the 1099-K.
1. Month-to-month reporting is one factor that is prominent on the new 1099-K. Taking a look at the new 1099-K form, one will observation an consuming characteristic that is quite separate from any other 1099. The reporting of revenue is "month-to-month" rather than yearly. The Irs made this unique compose to aid federal agencies in assessing the duration in which revenue will be earned. However, you can be sure that state agencies such as Sales and Use will also use this form in determination of the proper duration for sales tax assessments. In the future, it will be quite easy for states to issue "minimum thresholds" of revenue field to sales and use tax as well as "anticipated" revenue based upon credit to cash ratios.
Additionally, reporting of revenue in only the last quarter of the year will also be eliminated. fellowships who reported the definite amount of total revenue and revenue for the year, yet loaded the revenue to the last quarter in effort to delay tax payments will be field to corrections when it comes to calculation of interest.
2. The new 1099-Misc also provides instructions for taxpayers that exclude payments that are now reported on the 1099-K. Specifically, here is an citation of the new instructions for the 2011 1099-Misc.
"Payments made with a credit card or payment card and sure other types of payment, along with third-party network transactions, must now be reported on Form 1099-K by the payment community entity under section 6050W and are not field to reporting on Form 1099-Misc. See the cut off Instructions for Form 1099-K. "
Starting in 2011, taxpayers will only article on the 1099-Misc those payments that are not field to reporting on the 1099-K. This could lead to disaster for aid fellowships like law firms or sub-contract services where customers pay by credit card and have historically issued 1099-Misc to the firm at the end of the year.
Service fellowships must beware. fellowships who historically received 1099-Misc should look intimately this year to ensure the payees have correctly calculated the 1099-Misc income, with the exclusion of the 1099-K revenue when applicable. In the event of error, experience the business who issued the 1099-Misc immediately and ask a corrected form reflecting the definite amount of cash income.
3. Off-shore bank list data will be captured for U.S. Taxpayers. There is an irregularity to this rule in 2011 that will be short-lived for fellowships where the payment community entity is uncertain as to whether the entity is a U.S. Entity.
The capturing of off-shore revenue has been a hot topic for the Irs for many years. It now appears that the Irs has found a formula of capturing a part of revenue paid to offshore banks related to U.S. Taxpayers. While the 1099-K will only capture the "non-cash" payments, this will eliminate the majority of payments made straight through e-commerce to off-shore accounts.
4. Only sure taxpayers will be affected. For the 1099-K, there is a two-fold requirement. First, the business must have a minimum of ,000 in payments. Secondly, the business must have at least 200 transactions. Each of these requirements must be met for the taxpayer to be affected. Thus, if a business has 10 transactions totaling 0,000, there will be no reporting requirement. Also, if a business has 500 transactions totally ,000 there is no need to report.
5. Gross sales, along with fee backs, will be reported. As a succeed of using the gross methods, it will be crucial to track fee backs, merchant processing fees, etc. To ensure proper recording of credit sales. This is consistent with the Irs's position that the proper approach for reporting sales is gross, with merchant expenses and fee backs as a cost of goods sold or bad debt expense.
The Irs did address the fee back issue in its 1099-K guidance. Irs Sec. 6050W(a)(2) states that gross amounts must be reported and that it was improper to article net sales. However, the Irs also admits that the data reported on the 1099-K is not intended to be an exact match of the net, taxable, or even the gross revenue of a payee. Thus, in theory, if there is a slight variance in your credit sales numbers, it appears the Irs is not going to make an automated correction, nor is the inequity going to be an automated audit flag.
6. The only reprieve in 2011 is the stay in collecting of back-up withholding for taxpayers in which payment community entities do not have a tax identification number. However, productive 2012, any taxpayer that does not submit a taxpayer identification amount will be field to back-up withholding. What does this mean? It means that the payment community entity will be withholding 28% of all gross payments that are processed and forwarding these monies to the Irs.
7. sure types of credit cards do not have to report. For fellowships that have secret cards where the card can only be used with the company, there are no reporting requirements. For instance, fellowships like Sears, Home Depot, etc. That have a credit card that can only be used at their stores, no reporting to the Irs is required. However, credits cards issued by malls, or where multiple taxpayers are able to receive credits cards, reporting to the Irs is required.
8. Convenience checks, cash advances, and Atm withdrawals have their own requirements and are not reported on the 1099-K. If you use a credit card to receive cash advances, make a payment using a credit card convenience check, or make an Atm withdrawal, these transactions do not trigger reporting to the Irs.
9. Government Payments are Not exempt. If you use a government benefits card (i.e. With food stamps, welfare, or unemployment), those transactions are not exempt and will be tracked and reported (if you hit the reporting threshold).
10. The Irs will use the 1099K as an audit tool. Thus, the taxpayers that have valuable jumps in revenue due to the new 1099K reporting requirement, will be at greater risk of prior year audits. This will be an sure consequence of the 1099-K reporting.
For more a copy of the new 2011 1099-K form, Irs Instructions or other information, please visit the http://www.accountingexpertwitness.com/News.html.
New 2011 1099-K Irs Tax Reporting Strives To Eliminate Unreported wage Via credit Cards
