Another form for your business tax filing - the 1099-K.
These 1099-k forms are sent out by banks and other financial organizations after year-end to the IRS, with a copy to the business owner/payee. Although the 1099-k is voluntary for smaller businesses (those with less than $20,000 in receipts and fewer than 200 transactions), many merchant card organizations send out 1099-k forms for just a few transactions.
The 1099-K is used to double-check that merchants are reporting all income from credit and debit card transactions and from use of third party organizations like PayPal. The IRS says the form is supposed to "increase voluntary tax compliance, improve collections and assessments;" in other words, to catch those businesses who don't report income.
What to do with those 1099-K forms:
1. When you get 1099-k forms in early 2014, look them over for accuracy and make sure your business records agree with the information on the form. If the information is different, check to see if the error is on your side or the merchant's. You may have to go back to the merchant to get the difference resolved.
TaxGirl Kelly Phillips Erb discussed the issues with the 1099-k a while back, noting that it may be difficult to argue with a large banking institution about the amount of reported income on this form.
2. Include the forms with your other tax records for your tax preparer.
Make sure you have excellent records on all credit card/debit card income transactions, so you can verify any differences between what is shown on these 1099-k forms and what you show as net income.
The Wandering Tax Pro, Robert Flach, says, "with the Form 1099K rules it is more important than ever for the small business owner to keep super-detailed records of all receipts and disbursements." AMEN!