What Online Sellers Need to Know about New IRS Rules
By Barbara Weltman
Online sellers may be confused about two new pieces of legislation involving taxes and IRS reporting requirements. Barbara Weltman is a legal, tax and financial information expert for small business, and in today's article, she gives a recap on rules dealing with Form 1099.
Information returns tell the IRS about certain types of income and expenses. The IRS then uses this information to match the amounts reported on taxpayers' returns, making it easier for the IRS to catch tax cheats or taxpayer mistakes. As a merchant, there are some key reporting requirements you may face:
Form 1099-MISC. If you pay an independent contractor for services totaling $600 or more in the year, you must report this to the IRS. This requirement has been around for many years and has not been changed. Thus, if you outsourced your bookkeeping to an individual who earned $1,200 from you throughout this year, you must send this individual and the IRS Form 1099-MISC.
Form 1099 to be named. If, in the course of your business, you buy goods and/or services, or pay rents of $600 or more during the year from another business (including a large public company such a Staples or Sam's Club), you must issue a 1099 to the vendor. There is no small business exception--all businesses must do this reporting. (The IRS has not yet released a draft of this form, so the number is unknown.)
This provision is set to take effect in 2012. Note: There is considerable sentiment to repeal this provision. On August, 17, 2010, the U.S. Chamber of Commerce announced that more than 1,099 companies and small business organizations around the country had signed a letter to Congress asking for repeal new Form 1099 reporting requirements on the grounds that they are burdensome, complex, and very costly. There has been no IRS guidance on this reporting (maybe because it suspects the provision will be repealed before it becomes effective).
Form 1099-K, Merchant Card and Third-Party Payments. If you accept credit cards, debit cards, and electronic payments in your business, the financial institution or organization processing your transactions must report the gross amount of the payments to the IRS, starting in 2011. This includes not only banks that process credit cards but also PayPal for its electronic payments. There is a small business exception: No reporting is required if a merchant has fewer than 200 payment transactions a year totaling less than $20,000.
About the author:
Barbara Weltman is a prolific author and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day(R) and monthly e-newsletter Big Ideas for Small Business(R) at BarbaraWeltman.com and host of Build Your Business radio.
About the author:
Barbara Weltman is an attorney, prolific author with such titles as "J.K. Lasser's Small Business Taxes and The Complete Idiot's Guide to Starting a Home-Based Business," and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of "Idea of the Day(R)" and monthly e-newsletter "Big Ideas for Small Business(R)" at http://www.barbaraweltman.com and host of "Build Your Business" radio. Follow her on Twitter: @BarbaraWeltman.
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