New Form 1099-K
12/01/11
Beginning in 2011, credit and debit card companies, and third-party networks such as PayPal, will be required to issue 1099-K forms on payments to merchants with over 200 sales transactions and over $20,000 in annual sales volume. The information returns must be furnished to the merchant by January 31, 2012 for the 2011 tax year. The IRS has delayed the separate reporting of these sales on the recipient merchants’ tax forms (Forms 1065, 1120, 1120S and Schedule C) for the 2011 tax year by indicating that the new lines on the 2011 tax forms related to these sales should be zero.
If you accept credit or debit cards you should review your accounting system to verify that it is capable of identifying and capturing the gross amount received from merchant card and third-party network payers. This information will need to be reported separately on your income tax return beginning in 2012, regardless of whether Form 1099-K is received.
The intent of this reporting is to increase compliance and improve collections and assessments within the IRS.
Sales and Use Tax
You may be liable for state use taxes if you purchase any item (i.e. equipment, computer software upgrades or supplies) out of the state (to the extent sales taxes were not paid to that state), over the internet, or if any in-state vendor does not collect sales tax. Equipment leases with out-of-state lessors should be investigated as the lease may specify that you are liable for sales and use taxes.