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What the heck is a 1099-K? It’s a new tattletale form designed to help the IRS know more about your income sources when you’re filing taxes. Its targets are the many people who run online businesses, sell at swap meets, or have home-based businesses but who don’t necessarily report all their income. The 1099-K tells the IRS how much money someone receives from Visa, MasterCard, American Express, Discover, PayPal, and other banking sources.
This isn’t trying to cheat you out of saving money on taxes. Some folks don’t even think of themselves as being in business because they are just selling some things on eBay. However, when you reach 200 transactions or $20,000, your income will be reported to the IRS.
Your credit card banks will now be asking you to provide them with your Social Security number or employer ID number when you do business with them. If you don’t provide it, they will have to hold back 28 percent of the money coming to you. The IRS may also ask them to hold onto some or all of your money if you have not been filing tax returns or ignoring your IRS notices.
However, due to some technical issues, the IRS is going to delay enforcement of this backup withholding for about a year. It will give you time to get your act together.
What does all this mean to you?
If you’re already reporting all your income and keeping proper books, this simply means a couple of extra steps on your tax forms when you are filing taxes. No sweat.
However, for folks who’ve been flying under the radar, this may be a new experience. The IRS will be looking for your credit card and/or PayPal sales to appear on your income tax return. It will be matching box 1 on your 1099-K to the new line 1 on your Schedule C or your business tax return (1065, 1120, 1120S).
Reporting this income doesn’t necessarily mean you will have taxable income. It just means that you will report all your sales. You then get to deduct the cost of the products you’ve been selling. In fact, you will probably have chargebacks, refunds, and banking charges or credit card commissions and fees to deduct.
Even if you are selling your products at a profit, you will be able to deduct your business expenses. That would include the business percentage of your computer costs, Internet fees, telephone costs, office supplies, vehicle expenses, marketing courses, consultant fees, and everything else you spend for your business. Since you’re probably working from home, you’ll even be able to deduct your office in home expenses. With clever planning, you may be able to reduce or eliminate your taxes—and you might even get money back.
It’s definitely time to schedule an appointment with an Enrolled Agent or CPA to get started on your 2012 tax plan.
Money Management Tips: Storing Your Paperwork
Last-Minute Ideas for Saving Money on Your Taxes
Documenting Your Donations for Tax Deductions
Tax Deduction for Claiming Elderly Relatives and Dependents
Tax Tips: Tax Implications of a New Baby
Paying Taxes on Self-Employed or Side Income
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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