Over the last few years the IRS has employed a few more tools to encourage taxpayers to report all income. One of those new tools is the form 1099K.
What is a 1099K?
If your business received payments through merchant cards (for example, VISA and MasterCard) or third-party networks (for example, Paypal and Google Checkout) then your Business should receive a Form 1099K from them showing the amount of such payments. These payments are included with other receipts and should be reported as Gross receipts or sales on the businesses tax return.
Make Sure To Reconcile Correctly
Amounts received from sources other than merchant cards and third-party network payers are also reported as Gross receipts or sales. This includes amounts reported on Form 1099-MISC and other sales and revenues from operations. If the total reported on Forms 1099-MISC plus the total reported on Forms 1099-K is greater than the amount you plan to report as gross receipts, then you should look a little deeper to determine the discrepancy.
What To Do If You Can’t Reconcile
If you still believe your number is correct, then attach a statement to the return explaining the difference. The IRS sends information requests to taxpayers that may have underreported their gross receipts as compared to payments reported on Form 1099Ks and 1099-MISC for the given tax period. If you fail to explain the difference they will most likely adjust your return to reflect the higher sales figure.
Don’t Worry If You Don’t Receive a 1099K
You may not receive a form 1099K if third-party network payments do not exceed $20,000 or the total number of transactions do not exceed 200. Regardless of whether a Form 1099K is received, all such receipts should be reported.
Every year, the IRS gets better at matching up these information forms with your tax return and very little gets by them. If you would like help preparing your return, or responding to a notice from the IRS requesting additional information, then call our office at 281-890-2554 to schedule a consultation.