Starting in 2011 there will be a new tax form called the 1099k form. This will be used by the IRS to make sure
that small businesses, which often times don’t report all of their revenues, will not be able to hide them from
the IRS anymore. Some small companies do not report all of their credit or debit card revenues or revenues from
third party payments like Paypal.
Believe it or not until now the IRS has been taking the word of the business owner that he is
reporting all of his income because the did not have access to the credit card revenues of small companies. The
only way to check if a company was cheating on its taxes was to do an audit . However there aren’t really enough
people to do thorough audits in the IRS. It is not a very foolproof system although most people don’t mind
With the introduction of the new 1099k form the gross amount of credit card, debit card, and
third party transactions will have to be filled out correctly. Hopefully the 1099k form will lead to better tax
compliance amongst small businesses.
My personal feeling about the 1099k form is that it is going to generate a lot of paperwork. If each
card type of transaction requires a tax form that is going to create a lot of stress on small business owners and
of course their accountants. But we’ll have to wait and see how it plays out in reality.
Some people who own small businesses are saying that the 1099k form and all its headaches might discourage them
from accepting credit cards in the future and will start to require cash payments. Cash is really difficult for the
IRS to keep track of.
The 1099k form might discourage people from selling things on ebay ,for example, because they will now have to fill
out a 1099k form if they sell things on line and receive payment through a third party such as Paypal. Those
who have business that are not on ebay or report all of their income from ebay argue in favor of the 1099k form.
They feel that if someone is selling products on line and not paying taxes on the revenue and also has no overhead
because they are only on line then they have an unfair advantage in that they can sell their items for less.
One of the issues that some small business owners have with the 1099k form is that if sales tax is charged on a
purchase it goes on the credit card transaction and can be counted as revenue. However it is not revenue, it has to
be given over to the government. Also they are concerned that if they report credit or debit card
transactions on the 1099 k form it may cause the IRS to think that he had double income because
normally credit card processors report the income automatically when the transaction takes place. Although, the IRS
claims that it is still working out the specific details of the 1099k form and that they will deal with this
concern and work on eliminating the problem.