This year all online sellers who meet certain requirements will receive a new 1099-K tax form from the IRS. This form was introduced last year to specific businesses but now will be sent to every online seller that meets certain criteria. In order to receive the online form from eBay, Paypal, Amazon and other 3rd party credit or debit payment gateways you must meet the certain requirements for the 1099-K form to be processed and mailed to you directly. Those requirements are you must do over 20,000 dollars in gross sales AND do over 200 transactions within the business year.
The 1099-K form that the IRS sends only captures how much money was made during that particular tax period through online sales streams. It does not report any deductions or business expenses that may have occurred during that fiscal year. You will have to calculate all this information out yourself in order to keep as many dollars in your pocket as possible. A little tip, for selling on Amazon and eBay all your listing fees and percentages taken from sales do count as business expenses, it is advertising costs. This can be written off on your tax forms. Also all your shipping expenses should be written off as well. The form also does not take into consideration returns, refunds, or chargeback’s. You should keep records of every transaction so you can easily identify areas where you can save yourself money.
The IRS has stated that they will initially only be comparing your total gross receipts with the number reported on the 1099-K form. If the numbers do not match you may raise a red flag and the IRS will look into your tax return further and as always the possibility of penalties and even an audit become an option.
With the form being new there is to be expected confusion for individuals and the IRS alike as they continue to work on how to best calculate the money owed on the 1099-K form. My personal feelings is that the form will be a work in progress for a few years until all the deduction fields become standard on the tax form and then implemented for TurboTax, H&R Block, Quickbooks, and others.
The IRS is taking the 1099-K form for online sellers very seriously now it is not to be taken lightly. The best way to make sure you save all the money you can is to keep records of all your transactions and make notes for returns or credits with each transaction. Godaddy has recently opened a new service called Godaddy Bookkeeping that will import your Paypal transactions as well as others in a simple to use software program to keep track of all your sales and expenses. You can sign up for one month only with no recurring fees for 10 dollars just so you can pull all your information, do your taxes, and save for your records. If you like the system you can sign up for longer and have it be your standard online sales accounting software. I have found this software to be very helpful in maintaining organization for when it comes times to fill out the 1099-K form.