If you run a small business that takes payments via a third-party network company -- that acts as a go-between that takes the customer's payment and places it in an account for you -- you know that the past few years have seen some changes to how your income is reported to the IRS. One of the biggest changes is the 1099-K, a relatively simple form that these processors are now required to send to the IRS and you when you hit a certain threshold. The 1099-K has brought with it a lot of confusion, much of it justified, so there are three things you need to know about the form and how it affects you.
It's Both-And, Not Either-Or
You will be issued a 1099-K if your payments with the network are more than $20,000 and come in more than 200 transactions. Again, that's "and." You have to hit both numbers to get the form. So if you have about $20,000 but fewer than 200 transactions, you won't get the form.
It May Double-Report Income
But some businesses have also received 1099-Miscs for the same income that was reported on the 1099-K. The 1099-Misc is the basic 1099 tax form that many businesses receive from clients -- if you're a freelancer, for example, you'll get one from your clients. If the clients paid you by check or direct deposit, and not through a third-party network, then you should still get a 1099-Misc from them. But if the client paid you through the network and still issued a 1099-Misc to you, and the network issued a 1099-K to you too, then your income has been double-reported to the IRS. This can set off the IRS' automated underreporting system and result in a lot of paperwork for you because you're the one who will have to prove you didn't underreport income.
It Can Be Hard to Avoid for Some
If you can control the number of transactions you receive, then you may not have to worry about the form at all. But many find the number of transactions impossible to avoid -- each transaction varies in amount, each client has their own system for paying, or each business has its days when there are more sales than others. If you can't control the transactions and think you'll get a form, you'll need to keep very good records of who paid what and where.
Better yet, get a good small-business accountant on your side to help you keep everything straight. While you may still have to contact the IRS at some point if the income is double-reported, the accountant's records can save you a lot of time. Contact a professional like Don Lamb CPA Inc P.S. for more information.Share