1099-K: What’s the Deal with This New Tax Form?
Are you increasingly frustrated with doing taxes for your online business? Every year you struggle through some new form or guideline the IRS sets until you finally understand it enough to send it in. As soon as the words “I’ve got this” come out of your mouth there’s yet another new form or guideline to confuse and confound you! Unfortunately we’re not here to reassure today. We’re here to talk about, yes, a new form – the 1099-K. It’s a form you very well may receive in the mail come February and it’s one that could change the way you do business. However, it’s also not a form to fear! Despite the fact it’s an IRS form and deals with taxes, the 1099-K isn’t as terrifying as it seems. In fact, it could end up saving you lots of time and headaches.
What is Form 1099-K, Anyway?
The 1099-K is a form that is sent out by online payment processors like PayPal to businesses who received payments via PayPal throughout the year. Much like other 1099’s, a copy of the form is also sent to the IRS so they know that number as well. Why did this all come about? For years the U.S. government knew that there was a “tax gap” between how much taxpayers were making online and how much they were paying in taxes. (Hint: For whatever reason, many people weren’t paying taxes on their online sales.) To help better track this info, they introduced legislation that eventually led to the form 1099-K. That being said, not everyone will actually get the form.
Online sellers have to fit into two specific criteria to even worry about the form in the first place. The seller must have made at least 200 transactions through the taxable year.
The seller must have made at least $20,000 through those 200 transactions through the taxable year. If you don’t fit both of those criteria, you don’t get the 1099-K. If you had 200 transactions but only made $18,000, you don’t qualify.
Why is it Not Terrible? You’re probably wondering why the form isn’t the end of the world when it comes to taxes. After all, doesn’t it spell more endless nights trying to figure out where what total goes where and on what line? Not really. Like we said above, the 1099-K merely tells you how much you made through the taxable year through a processor like PayPal. That’s all it says. If you properly track all your invoices then you already know this information! It’s more of a confirmation than anything else. If you know the numbers are correct, then all you have to do is calculate your taxable income based on your expenses and deductions. Again, the 1099-K only adds up sales figures, so it won’t tell you how much you owe on taxes or what your deductions are. You have to figure all that out yourself.
The most important thing to keep in mind is that the 1099-K has no way of knowing how much you spent to maintain your business. It’s your job to report those numbers on your tax return at the end of the year, otherwise you may end up paying way more to Uncle Sam than you actuall owe. May we suggest using Outright to get a better idea how much you owe on taxes and the like? It can take the rest of the guesswork and headache out of figuring out your taxes so you can get back to making products and selling them.
Look for the 1099-K form around February in 2013. After you’re done with it, simply file it away for your records and you’re all done until next year!
This guest post was brought to you by Outright.com, the easiest way to manage your business finances online. Sign up for a free account today and you’re well on your way to a less taxing tax time!