Understanding A New IRS Form 1099-KThe form 1099-K is one of many new forms aimed at helping the IRS collect more money without raising taxes. The new IRS rule is effective beginning with 2011 tax year and requires all Payment Settlement Entities (Credit Card providers including banks, PayPal, and others) to report all qualifying payments made to individuals during the past calendar year. In other words, this 1099-K form is issued to folks who sell things (such as, eBay sellers) and get paid by credit cards, PayPal, etc. To get caught by this form, a seller must have had over $20,000 in sales or over 200 transactions. A casual eBay garage-sale-type seller wouldn’t get one of these 1099-Ks. Payments that are included in this rule are:
New Line on Schedule COn Schedule C, the IRS has added a new line where you report the income shown on the new 1099-Ks. Read more about the new forms on this IRS page. If you have other income that was not paid to you via credit cards or online payment systems, be sure to report the rest of the income on the next line. Remember, if you had refunds or charge-backs report those as returns and allowances. Avoid duplication on 1099-MISCTo prevent duplicate reporting to the IRS, the 1099-MISC form from the small business owner must now exclude the payments types listed above as the payments are being reported by the card issuers and third-party payment networks on Form 1099-K. However, it must still include Cash, Check, EFT, ACH, and Direct Deposit payments. Using accounting software, such QuickBooks, you can easily mark payments for exclusion from Form 1099-MISC. When you use check payments (in either Pay Bills or Write Checks) to record a payment to a vendor with a credit card, debit card, or gift card, or using a third-party payment network, you simply note the payment method in the check number field. The accounting software recognizes, and automatically excludes from Form 1099-MISC, any check payment containing specific notations in the check number field (usually the amount of characters are limited). For example, QuickBooks recognizes one of following notation: Debit, Debitcar, DBT, DBT card, DCard, Debit cd, Visa, Masterc, MC, MCard, Chase, Discover, Diners, PayPal. Accounting software, like QuickBooks, automatically excludes from Form 1099-MISC any bill payment made using the credit card payment method. |