There was a new change to reporting this past year – the Form 1099-K. Merchant service providers such as Visa, Mastercard and Pay Pal were required to send these forms to sellers starting this past year. The IRS realized wasn’t quite ready to start matching these forms with tax returns so although the Form 1099-Ks were sent, we weren’t required to really do anything with them.
That all changes this next year. This trial year has given us all the chance to see what the forms will be like and come up with some strategies to handle them next year.
One thing is certain: You can’t ignore the Form 1099-K. The IRS will have a matching program in place to make sure you are properly reporting sales on your tax return.
Now some of the challenges:
The Form 1099-K will report the total gross amount of sales received.
There is no allowance given for shipping charges.
There is no allowance given for refunds you make to customers.
There can be timing differences as there is a delay from when the Merchant Service Provider receives the money and when you receive it.
It will be up to you to reconcile the Form 1099-K from each provider with the amount that you have received. That means you’ll need to have good bookkeeping records to back-up your reconciliation, or you’ll face extra tax.
The Form 1099-K has added a new wrinkle to bookkeeping and increased the need to keep your records up-to-date and accurate throughout the year.