Do you know about IRS form 1099K?

Come January, the festive season will be over and will soon be followed by the tax season. Small business owners will start sending and receiving form 1099’s showing the money paid and received for the services they rendered in the year 2012. One of the newer forms that IRS has introduced is 1099K starting in 2011. Sellers of items on E-commerce sites such as eBay and Etsy, that include many home-based merchants, are the typical recipients of this form. Many of them were caught by surprise last year upon receiving this form. There was also lot of confusion surrounding the form resulting from the instructions provided by IRS on this form (What else did you expect from IRS?)
So what is form 1099K and what does it include?

Form 1099K reports income that small businesses have received when they processed the payments through 3rd party processors such as PayPal or other credit card merchant service providers. Only those businesses that have total payments exceeding $20,000 or aggregate number of transactions more than 200 in a calendar year will receive this form. The income reported on the form is “Gross Sales”. It shows the totals of all of your sales, including the shipping charges. Also, It does not remove refunds and returns that reduced the total sales nor does it remove the fees paid to the 3rd party processors. You may find the gross sales number to be higher than what you had expected in terms of net sales. It is your responsibility to track and remove these items before arriving at the “Net Sales” on which you will need to pay taxes.
The Infographic below shows the details of this form along with lighthearted factoids about the taxes. Hey, as boring and dreadful as tax sounds we all could use simplicity and humor to deal with IRS. Let me know what your favorite part of the Infographic is.

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