Business Owners Beware – New IRS Form 1099 K
Beginning in 2012, banks, credit card companies, and other third-party organizations that settle transactions were required to file informational returns with the IRS that reported a business’s credit and debit card transactions and other electronic types of reportable income. The IRS form used to file that information is Form 1099 K. If your business has credit/debit card transactions, then you, along with the IRS, have received this form in the past.
The information provided on the Form 1099 K allows the IRS to determine your business’s gross income from credit and debit card sales and makes it easier to segregate credit/debit card sales from cash sales.
With Form 1099 K, the IRS is in the position to see if the credit card dollar figure reported on your tax return matches your bank’s information return. This form will also allow them to see if your business’s other sales from cash and check payments makes sense in the context of your firm’s overall business.
As expected, the IRS has developed a program to match reported income on the income tax returns filed by businesses to the income reported on the 1099 Ks. The IRS’ analysis includes comparing the percentage of income a specific business reported as coming from credit/debit cards and cash sales, for example, to what the typical percentage is for other businesses in the same industry.
If you receive a letter from the IRS related to the 1099 K, then the IRS’s computer thinks you underreported your business income and they are is requesting an explanation for the discrepancy. Don’t procrastinate or ignore the letter; it will only makes matters worse.
If you receive one of these letters, contact us and we will handle that correspondence to the IRS for you. Call us at 559-924-1225 to schedule an appointment or bring the letter in. And, as always, if you have any questions, feel free to give us a call.
