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What Online Business Owners Should Know About IRS Form 1099-K

Updated for Tax Year 2016


OVERVIEW

If you are an online retailer and accept credit card payments over the Internet, you may also have to deal with reporting any 1099-K forms that you receive from credit card or third party processors. Accounting for these forms accurately is important to ensure that you do not pay too much or too little tax.


Small business office

As a business owner, you have many tax rules to follow to properly report your revenues and expenses. If you are an online retailer and accept credit card payments over the Internet, you may also have to deal with reporting any 1099-K forms that you receive from credit card or third party processors. Accounting for these forms accurately is important to ensure that you do not pay too much or too little tax.

 

Purpose of the 1099-K

IRS Form 1099-K came into existence as part of the 2008 Housing Assistance Tax Act -- even though it has nothing to do with housing. This form endeavors to ensure that all online retailers are reporting sales for tax purposes. It requires credit card companies, such as MasterCard and Visa, and third-party processors, such as PayPal and Amazon, to report the payment transactions they process on behalf of retailers. Therefore, if you accept credit card payments online, you may end up with a 1099-K at the end of the year that summarizes all of your sales transactions with each processor.

Who gets a 1099-K?

Every retailer who accepts online credit card payments from customers will receive a 1099-K if its annual processing activity has met the following guidelines:

  • Through credit card companies: If the sales volume is over $600 per year
  • Through third party processors, if the volume is over $20,000 and if there were more than 200 individual transactions.
If you have met these criteria, you will receive a copy of the 1099-K in the mail by January 31 of the following year. If you believe you should have received a 1099-K and have not received one by that date, consider contacting the processor to find out if it has prepared one for you. If the processor did not prepare a 1099-K, you should report your sales on Schedule C of the 1040 return and leave the 1099-K line blank.

1099-K versus the 1099-MISC

Prior to the implementation of the 1099-K, many businesses were required to provide a 1099-MISC form to many of their suppliers if they did more than $600 in business together annually. If the transactions occurred through credit card or third-party processors, there is a possibility of these transactions being reported on both forms.

The IRS has directed that any 1099-MISC payments that are reported on a 1099-K should be reported on the latter form only, and that a 1099-MISC need not be produced. However, in practice, many companies are still providing 1099-MISC forms. To avoid double taxation, keep detailed sales records and deduct any payments also reported on the 1099-MISC form from the 1099-K before reporting, and be prepared to explain the deductions to the IRS.

Reporting a 1099-K on your tax return

Beginning with the 2012 tax year, report your 1099-K payments on Schedule C on a separate revenue line. Consider performing a double check on your total business income by comparing the total revenue on Schedule C to your profit and loss statement from your accounting system.

If you are filing a Schedule F rather than C for farming, 1099-K payments are reported there. If you are not certain how many 1099-K forms you will be receiving, you may want to consider waiting to prepare your tax return until after January 31 - when you should have received all of these forms.
 
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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