It’s tax season and that implies that all method of mysterious tax kinds would possibly start showing in our mailboxes. The tax kinds that small enterprise house owners find yourself with could be much more perplexing — particularly in the event you’re new to entrepreneurship. What the heck is that this 1099-Ok type? Why did you obtain it? What does all of it imply?
We’ll cowl all of those questions beneath.
What’s Kind 1099-Ok?
Kind 1099-Ok debuted again in 2012 when the federal government was looking for extra funds (aka gather extra taxes) after the 2008 monetary disaster.
Third-party fee processors corresponding to PayPal, Amazon and Stripe are required to problem Kind 1099-Ok to sure retailers who use these processors to course of funds.
The federal government’s considering went that maybe retailers who used these third-party fee processors to gather cash weren’t paying taxes on that earnings. Lately, these third-party fee processors are required to ship type 1099-Ok to each companies utilizing their platforms and the IRS.
In different phrases, type 1099-Ok is the federal government’s manner of monitoring how a lot cash actually passes by on-line fee processors corresponding to PayPal, Amazon and Stripe.
Associated: Are you making enterprise taxes extra difficult than they have to be?
Who receives Kind 1099-Ok?
Kind 1099-Ok has been round since January 2012, however you won’t have acquired it. That’s as a result of you need to meet some specific criteria with a view to get the shape. Third-party fee processors are required to ship type 1099-Ok to individuals who:
- Made greater than $20,000 in gross sales quantity by that particular fee processor.
- Remodeled 200 gross sales by that particular fee processor.
Observe: In 2021, it was determined that the brink for 1099-Ok kinds had been lowered to $600, fairly than $20,000/200 gross sales. Nevertheless, the IRS introduced on Dec. 23, 2022 that this tax season can be handled as a transition 12 months, preserving the previous threshold limits in place.
“Regardless that the Kind 1099-Ok lowered reporting requirement for third-party settlement organizations was delayed, some people should obtain a Kind 1099-Ok who haven’t acquired one previously. Some people might obtain a Kind 1099-Ok for the sale of non-public objects or in conditions the place they acquired a Kind 1099-Ok in error (i.e. for transactions between family and friends, or expense sharing). IRS is updating steerage to direct taxpayers to report these situations on the Kind 1040, Schedule 1, for tax 12 months 2022.”
Take into account that in the event you’re going to obtain Kind 1099-Ok, it is best to obtain it by January 31. Third-party fee processors are allowed by regulation to ship the shape to you electronically or by mail.
What do you have to do with Kind 1099-Ok?
If you happen to do obtain Kind 1099-Ok, the very first thing it is best to do is evaluate it to your individual monetary information. It isn’t unparalleled for fee processors to make a mistake. In the event that they by chance report back to the IRS that you simply made more cash than you really did, you may get caught on the hook paying taxes on cash you didn’t really earn!
Earlier than you are concerned if this quantity doesn’t match, have in mind a few issues. Kind 1099-Ok solely takes under consideration your product sales. For that cause, it doesn’t take into account or report:
- Charges (i.e. PayPal charges, market charges, and so on.)
- Refunds and returns
- Delivery and postage
- Enterprise bills like packaging provides, and so on.
If you happen to decide that your 1099-Ok is wrong, contact the third-party fee processor that issued it instantly. If you happen to’ve decided that your 1099-Ok matches your individual information, then put it up for safekeeping. That is an informational return, so there’s no have to do anything with it. Your fee processor has already despatched it on to the IRS.
Associated: IRS FAQs on payment card and third-party network transactions
Kind 1099-Ok for GoDaddy Funds prospects
To enhance the tax reporting expertise for our prospects utilizing GoDaddy Funds, we now have automated the Kind 1099-Ok course of. With this rollout, GoDaddy Funds prospects will be capable to entry and obtain a PDF/digital copy of their Kind 1099-Ok from the brand new Tax Middle within the Funds Hub.
What’s going to the IRS do with Kind 1099-Ok?
Kind 1099-Ok is meant to make sure that we’re all paying our justifiable share of earnings tax. So if a third-party fee processor stories that you simply made $75,000 in earnings, whilst you inform the IRS you solely made $74,000 in earnings, it’s essential to have the monetary information and documentation able to again up any discrepancies. In any other case, your tax return may very well be red-flagged for additional scrutiny.
Tax season can really feel aggravating for small enterprise house owners, so hopefully this information has helped to shed some gentle on Kind 1099-Ok and the steps you might have to take forward of submitting. And, in the event you’re considering extra automation sooner or later to your Kind 1099-Ok, GoDaddy Funds has you lined.
The above content material shouldn’t be construed as authorized or tax recommendation. At all times seek the advice of an legal professional or tax skilled relating to your particular authorized or tax scenario.
