Starting in January 2012, businesses that accept credit and debit cards when making sales to customers will receive IRS Form 1099-K from their credit card processing company. The 1099-K will report the total payment transactions for each tax year after 2010. The new reporting requirement is part of on-going government efforts to increase collection of income tax.
Form 1099-K was created as part of the Housing and Economic Recovery Act of 2008 to increase compliance in reporting sales income by merchants. Because the IRS also gets a copy of the form, it will help the agency to determine whether or not business owners are reporting correct sales figures on their tax returns.
Not only must banks and credit card processing companies comply with the new reporting requirement, third-party networks such as PayPal and eBay, Inc. must also report total credit card transactions to their business customers who use their services to process online sales.
Not every merchant will receive a Form 1099-K. Only those merchants who generated both a minimum of 200 transactions and $20,000 or more in sales will receive the form. Casual sellers should keep in mind that even though they may not receive a 1099-K, their sales income is subject to income tax and must be reported on their tax return.
Knowing whether your online "garage sale" qualifies as a business in the eyes of the IRS can be tricky so please make sure you contact this office should you have any confusion about what is taxable and what is not. We’re here to help.
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