Posted by Keith Hall (NASE National Tax Advisor) - You may be one of millions of small business owners who have received a new form from who knows where, called a Form 1099-K. This is a brand new form required of credit card processing companies, or payment settlement entities (PSEs) as the IRS refers to them, to report the total amount of credit card charges that have been completed by your business. The real question is what to do with these forms? We all know that the forms 1099 that we get are included as taxable income on our tax returns, but what does this new form mean?
The easiest answer for this year is that it doesn’t mean anything and there is nothing that you need to do related to the new form. There is even a line right on the Schedule C for this year for Merchant Card Processing, but the Schedule C actually says, “Enter -0- for 2011”. Most of the IRS regulations relate to the reporting companies themselves and who has to send what forms and to whom. But for us small business owners there is nothing really that we need to do other than, perhaps, understand what the form means.
The total on your form 1099-K simply means that the credit card processing company completed transactions totaling that amount that were credited to your account. It doesn’t mean that the specific number necessarily represents taxable income but only that the specific number was indeed collected by you and your business. So the bottom line for this year is that nothing really needs to be done. For next year, we may be asked to differentiate between cash collections and credit card collections in completing our tax returns, but for now don’t and any new stress related to your tax return for the new Form 1099K.
For more on the new form check out the IRS detail at http://www.irs.gov/taxpros/article/0,,id=225080,00.html.