(this is a reprint of a post written on my wordpress.com blog dated February 29th, 2012)
Hey! It’s the 29th of February – Leap day – a bonus day in 2012. I have a newsletter to write today (although I’m waiting on photos and won’t post it until tomorrow) and no time to do both. (Sorry) But did find an interesting article for my artist friends out there who are selling their own creations. TAX info about a new form. This is a reprint from another blog I saw it on, meylah.com and they reprinted it from somewhere else. Check it out! Very good information.
Clearing Up Confusion On Tax Form 1099-K
This guest post is brought to you by Outright.com, the easiest way to manage your business finances online.
In an earlier post, we briefly covered the brand new tax form 1099-K. Basically, we told you that it exists, and could be a headache for ecommerce sellers around the world.
But the more we cover the 1099-K, we notice we still get a ton of comments and emails from Outright users who have just heard of it. Furthermore, they seem really confused about what precisely is on the thing and how to use the information on the 1099-K when filing their taxes!
So, we’re back to settle the score with the 1099-K. Hopefully after reading this post you’ll have a better understanding of this mysterious document and whether it will really affect your business.
What Exactly is Reported on the 1099-K?
The purpose of 1099-K is simply to report to the government income earned by U.S. Citizens via electronic means (i.e. PayPal, Amazon, eBay, credit cards, etc.). But, income is literally all that it tracks.
If you’re wondering if the form tracks business expenses – it doesn’t. Or PayPal fees – nope, none of those. What about refunds and returns? Uh-uh. The figure found on your 1099-K simply reports how much in income you made through PayPal (or whatever electronic payment processor issued you the form).
Because of this, the amount reported on your 1099-K might seem a little higher than you expected. But that’s okay. If you have kept track of all of your business expenses – fees, refunds, cost of goods sold, office supplies, advertising, etc. – then you won’t be hit with a huge tax bill. Just remember that it’s your job to show the government your expenses when filing your taxes.
Where do I Report the Amount from my 1099-K when doing My Taxes?
Another source of confusion is where to enter the figure found on the 1099-K into your taxes. For self-employed people and LLC’s, there is a specific form, the Schedule C, that’s used to report to the IRS. But the wording on this year’s Schedule C has some people thrown off.
You do indeed use Schedule C for entering the information. And this year, there’s a dedicated line for the 1099-K…line 1a. But wait! The instructions next to it say to enter “0” for 2011 no matter what. So what gives, pal?
The reasons are mysterious, and may serve just to get people ready for the 1099-K’s prolonged existence. But whatever the case, go ahead and mark down that “0” on line 1a. The line you want this year is line 1d, which lets you give total gross receipts for stuff like credit card transactions. But one caution: the IRS still receives your 1099-K this year. If the 1099-K shows you made $50,000 while you report a mere $20,000 in income, you are going to hear from the IRS with some very pointed questions. Once again, that’s why it’s so important to include ALL of your income on Schedule C line 1d but to then track your expenses.
That’s really about it! But one more time, make sure you remember to track and record your own business expenses and deductions, as again the 1099-K doesn’t take ANY of that into account. But hopefully the mystery has been taken out of the process and you can put your taxes behind you soon and concentrate on selling once again.
If you have any more questions or concerns, head over to our Tax Resource Center!
Worried about that Schedule C? Create a free Outright.com account today and make tax time less taxing!