Has everyone seen the new Tax Form 1099-K? This form started making its way to small business owners two tax seasons ago and the form is sent to businesses by “payment settlement entities” reporting the amount of credit card and other electronic receipts that were processed by your business.
The IRS also receives a copy of Form 1099-K and cross checks the reported amounts with the business’s total income reported on its tax return. Where the numbers don’t seem to make sense, the IRS sends notices to businesses telling them they “may have underreported gross receipts.” Notices go on to say “This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments.”
The IRS has sent thousands of letters labeled “Notification of Possible Income Underreporting” to small business owners. The notification project is ongoing as part of the IRS’s campaign to deal with the “tax gap,” the difference between taxes owed and taxes actually collected.
Make sure what you report for income on your tax return exceeds the amounts reported on Form 1099-K, but also be sure to verify the amounts reported by your merchant provider – errors have been happening more and more in the last few years.
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