|Do you accept credit cards? You may be receiving|
a 1099-K this year.
You may be asking yourself, "why am I getting this and what the heck do I do with it?" while subconsciously rubbing your temples from the tax headache that's starting to form.
Don't fret! It's actually not a big deal! (Unlike the Dance Buzz, who is most definitely a big deal... I'm going to pull on my tax smarty-pants and see if I can shed some light on what is up with 1099-Ks)
WHY DID I GET A 1099-K?
A new law was passed that requires businesses who process payments (like PayPal or your credit card merchant) to report the amount of sales they processed and for whom it was processed (you). They filed a 1099-K to the IRS reporting the sales they processed for your business. That means that the government knows how much sales you did through credit cards. And you will report this amount on your tax return as part of your gross sales.
It is a way for the government to make sure everyone is playing fair and reporting all of their sales. In my opinion, I think it is in result of the major growth of online businesses. This new law will help the IRS ensure that people who do a lot of business online are reporting their sales. In the past, the IRS had no way of knowing how much income you received from credit card sales, which is an online business' primary method of receiving income. Ok, I'm off my soapbox now. Back to the subject at hand.
Read what the IRS has to say
|Did you receive a 1099-K for your studio?|
I ACCEPT CREDIT CARDS BUT DIDN'T GET A 1099-K. WHAA?
You might actually not have to worry about it - you will only receive one if you had more than 200 transactions this year and more than $20,000 in gross sales.
OK, NOW WHAT DO I DO WITH IT?
If you have an accountant, give it to him or her. They will need it to prepare your taxes.
If you do your own taxes, you are going to use this number to breakdown your sales income.
I STILL DON'T UNDERSTAND, SHOW ME AN EXAMPLE
Ok, so if your business made $100,000 in dance lessons and you accept credit card payments. For our example, you did $30,000 of your sales through credit card transactions. You should receive a 1099-K from your credit card merchant showing that they processed $30,000 of sales. You might also find this total on your December 2011 merchant services statement.
If you claim your business by using Schedule C on Form 1040, you will see the new line 1a (picture below-click to enlarge). In the circled area, you will see that we broke out the $30,000 (our credit card sales) from the rest of the gross profit ($70,000). The total ($100,000) is reported on line 1d.
|Schedule C for Form 1040|
Disclaimer: While I have a degree in Accounting, I am not a Certified Public Accountant (CPA). Everyone's individual tax situation is very different and if you have a specific question, you should seek out a tax professional who can give you specific advice pertaining to your situation.