The news that you’re getting a new tax form in the mail is never greeted with happiness and cheers. And the follow-up question “what do you do?” seems kind of ridiculous – what other choices are there than to run away to Canada or hide in your bathtub screaming?
Well cancel that road trip and come out of the bathroom because we have some good news. The new 1099-K tax form is easily one of the simplest forms you can get from the IRS. In fact, it’s practically helpful, if you can believe that.
Still don’t believe us? Keep reading to see why you shouldn’t be so freaked out right now.
What is Form 1099-K?
First and foremost, let’s find out if you’re actually getting the 1099-K. It’s only applies to a select group of online sellers, so you may not receive the thing at all.
If you made $20,000 or more in the taxable year in 200 or more transactions from one payment processor, then you get the 1099-K. If you don’t fit both of those criteria, you don’t get it. You could make $20,000 but only in 199 transactions and the new form won’t come your way.
If you are getting the form, you undoubtedly want to know what to expect before it comes in the mail. The 1099-K is a tax form that lets companies like PayPal and Amazon report how much money you made through them with your online store.
“And?” you’re probably asking. Well, there isn’t really an “and” here. That’s all the form does. The IRS needed a way to track how much online sellers really owed as some weren’t reporting their taxes correctly. It was creating a “tax gap” that meant a lot of missing money for the government. The 1099-K was designed to correct this.
What Do I Do?
Since the 1099-K only reports how much money you made through PayPal, Etsy, Amazon and the like, there doesn’t seem to be too much of a use for it. You may think you should just file it away since you already have the information they provided as you properly track your income and expenses with Outright (right?).
However, the form can still be useful. For one, you may not use Outright and aren’t exactly sure how much you made through a certain payment processor like PayPal. Or you may have tracked your money as a whole and didn’t even think of separating sales into sub-categories. In this case you can use the 1099-K as a “shooting point” to get an idea how much you owe.
Now keep in mind since the form only reports how much you made you still have to figure everything else out. If you want to take deductions, you have to calculate them. If you don’t include it thinking the 1099-K will cover it, you’ll end up owing more than you should – which is never a good thing!
After you finish your taxes, make sure you file the 1099-K away just in case – although the chance is slim, a mistake could have been made by one of the companies! If that happens you don’t want to be held liable and it always helps to have proof around.
Have more questions? Ask your tax questions over at the Outright Community!
This guest post is brought to you by Outright.com, an alternative to Mint for business. Sign up today for an Outright Plus account and enjoy a less taxing tax time!