The IRS has instituted a new form that will allow them to compare your gross receipts and credit card revenues, and you should be familiar with it to be sure you follow the new rules and avoid an audit come tax time.
For more:
http://mbsbookkeeping.blogspot.com/2011/07/irs-introduces-form-1099k....
Mark,
"If your business receives revenue from credit card transactions, you should be prepared to fill out the new Form-1099K before you even file a tax return."
We sometimes receive payments via credit cards but as I understand it that does not make me a Payment Settlement Entity (PSE) that is required to file a 1099K.
I do not have a contractual obligation to make payment to any participating payees in settlement of payment card transaactions.
Scott
Scott,
Thanks for your feedback. That is correct. The 1099K only applies to the entity that processes the money (ie; Banks and Merchant Service Companies) The third party entity that is processing for you.
Thank you for making that clear.
Sincerely,
Mark
Yes, please note that Mark's article at MBS bookkeeping was written back in July when requirements were not clear yet; it was more of a "heads up". The article does not appear to have been updated since then.
The new 1099K is prepared by an entity (MSE) that processes credit card payments for business owners, including debit cards used as a credit card (e.g., banks and merchant service companies), and, certain other payment processors. (e.g., PayPal, etc.). Your payment processor (MSE) will be reporting to the IRS on a 1099K, the total payments that they processed and paid to you, .
Two important notes for the business owner:
1) Since payments you received by credit/debit card and PayPal are being reported to the IRS on 1099K by your MSE, double-check your books to be sure all those payments are recorded properly as income, and, ideally, labeled with the method of payment, so you can easily reconcile to the 1099K, in case of an audit.
2) If you, as a business owner PAID a 1099 vendor with a credit or debit card or PayPal, etc., you are NOT supposed to include that payment in the 1099-MISC that you issue to your vendor. (Why? Because your vendor's MSE (merchant card processor and / or PayPal, etc.), will already be reporting the payments that your vendor received from you on a 1099K to the IRS. If you report the payment also on a 1099 Misc, it will be double-reported.)
You should also monitor the 1099 MISC forms you receive from your customers, as always,, to be sure they are correct, and, now, to be sure they do not include credit card / paypal payments they made to you.
There are lots more details to the new 1099 requirements, but, the two above items are particularly important to note. As always, you should review the latest IRS 1099 instructions to be sure nothing else applicable to your business has changed.
Linda
