Overview of the New 1099-K Reporting Form

February 1, 2012 | By: TaxCure Staff

1099-k-reporting-formInternet technology has provided a host of new opportunities for enterprising individuals to make more money. Indeed, the number of people making money online from selling items on venues such as eBay and Craigslist is on the rise.

On top of that, many others use third-party payment processors to help them conduct transactions related to their online businesses. These transactions, in the past, have been difficult to track.

In many cases, 1099-MISC forms are not issued since at least $600 might not have been paid by a client or buyer to a contractor or seller. It means that some income could be going unreported – and the IRS wants to recapture some of that income.

The New 1099-K Form

To better track income from online sources, the IRS has introduced the 1099-K form. This form is being introduced for the tax year 2011, which means it applies as you fill out your return in 2012 for your 2011 taxes.

The 1099-K form is issued by third-party payment processors. So, for eBay sellers, this means that your Form 1099-K is likely to come from PayPal, since that is the company that processors a large number of the transactions on the site. Banks and other payment processors are also required to issue 1099-K forms. These forms list the income that you received as a result of the transactions handled by the processor.

Not everyone will receive a 1099-K form, however. Many online sellers only make a little money – and may not even turn a profit. They are trying to clean out the garage, and maybe make some money as well. As a result, only those who have earned $20,000 for the year, and have accomplished 200 transactions, will receive 1099-K forms.

Things to Keep in Mind about the 1099-K Reporting Form

If you receive a 1099-K form, it is important to be aware of the consequences. First of all, your 1099-K only shows your income; it doesn’t show the costs of doing business, such as the fees charged by payment processors and mailing costs if you sent packages. You will need to keep records of these expenses and deduct them against your income. If you are a sole proprietor, you can do this on your Schedule C, which allows you to show your profits and losses. For a business owner, such as someone with an LLC, it is possible to include this information on the Profit & Loss statement that should accompany your business tax return.

Another difficulty with the 1099-K form comes from business owners who do most of their business via a third-party payment processor. You might be issued a 1099-K form from the payment processor, and also receive a 1099-MISC from your client. In that case, you will need to make sure you have the records that show that some of the income has been double-reported. The IRS will think that you made more money than you did, and you will need to be prepared to counteract this in the event of an audit.

The new 1099-K form is another way for the IRS to ensure that your income is properly reported. Keep good records of your income on your own, and reconcile your records to your various W-2 and 1099 forms, including the new 1099-K forms.