January 28, 2014

Tax Form 1099-K: What Do I Do with It?

This post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!

There’s that old sinking feeling again – you see a tax form in your mailbox and you have no idea what it is! It could be something completely benign or the worst piece of paper you’ve ever held between your shaky fingers. You open it up and see it’s the 1099-K.

Wait, what is that again? You feel like you’ve seen this before but can’t quite recall what it does or if you should be terrified. Perhaps that’s why you clicked on this blog post in the first place so you could react properly to the news. Let’s take a look at the 1099-K and what it means for you and your business…and why you shouldn’t be so afraid right now.

What is the form?

The 1099-K is a tax form that is used by payment processors like PayPal or Etsy Direct Checkout to report how much sellers made throughout the year. Before this form there was no good way for the government to track this information. They suspected that many sellers were misrepresenting how much money they were actually making so they began requiring payment processors to send out this form every year.

If you’re a seller on Etsy and use PayPal for your transactions, PayPal will send you a 1099-K to report how much you made. They also send the IRS a copy so they know how much you made. And that’s really about it – it’s simply an informational tool and to help the government crack down on fraudulent tax reporting.

Who gets it?

However, just because you sell online doesn’t mean you’ll automatically get the 1099-K. In fact, many sellers on sites like Etsy or Amazon won’t get one, as they don’t make enough money. It’s only for top sellers for now.

You must meet the two following criteria to receive the form:

-        Make $20,000 or more
-        Sell 200 or more items

If you don’t meet both of those, you won’t get the form. If you do, expect to see it in your mailbox by the end of January/beginning of February.

What to do with it?

So if this tax form merely reports how much you made through a certain website or payment provider, is there anything you can actually use it for? It’s a good question, and while it is primarily an informational one, you can use it for your tax purposes.

For starters, it gives you a good idea what you made through the year if you haven’t been tracking your own finances. Now you have something to work against when you start your taxes for April. However, it is always a good idea to do your own finances or sign up for GoDaddy Online Bookkeeping to keep your own accounting of income (and expenses) just in the case the 1099-K has incorrect information on it. You don’t want two different totals going to the IRS or for something to come up down the road.

Also, just because the IRS sees a big total doesn’t mean all that total was profit for your business. You’ll be able to deduct your business expenses when you file your Schedule C (self-employed) tax form in April. Make sure you’re tracked your expenses, or the IRS will think the amount on your 1099-K is pure, taxable profit.

After you’ve filed your taxes, put the 1099-K in a safe place with your other tax forms. It’s good to keep everything on file for at around seven years…just in case.

Did you receive form 1099-K? Did it gel with your own books?

1 comment:

Mukesh Kumar said...

Go to the https://www.onlinefiletaxes.com/ and hire profesional to submit your 1099-K forms in a good way.