What is this Form 1099-K I received?

It’s tax period and that usually means that all way of mysterious tax sorts may begin showing up in our mailboxes. The tax varieties that compact company entrepreneurs conclusion up with can be even more perplexing — in particular if you are new to entrepreneurship. What the heck is this 1099-K form? Why did you acquire it? What does it all suggest?

We’ll include all of these questions beneath.

What is Type 1099-K?

Variety 1099-K debuted again in 2012 when the authorities was trying to obtain far more cash (aka collect far more taxes) just after the 2008 monetary crisis.

Third-celebration payment processors these kinds of as PayPal, Amazon and Stripe are demanded to problem Kind 1099-K to specified merchants who use those processors to system payments.

The government’s thinking went that potentially retailers who made use of these third-occasion payment processors to collect funds weren’t shelling out taxes on that profits. These times, people 3rd-bash payment processors are necessary to send type 1099-K to both equally firms employing their platforms and the IRS.

In other terms, sort 1099-K is the government’s way of tracking how a great deal cash genuinely passes through on-line payment processors such as PayPal, Amazon and Stripe.

Connected: Are you creating business enterprise taxes additional difficult than they will need to be?

Who receives Variety 1099-K?

Type 1099-K has been close to since January 2012, but you might not have acquired it. Which is for the reason that you have to meet some particular criteria in order to get the type. Third-social gathering payment processors are essential to ship form 1099-K to men and women who:

• Built more than $20,000 in gross sales volume through that precise payment processor.
• Produced about 200 sales via that unique payment processor.

Note: In 2021, it was made a decision that the threshold for 1099-K forms had been decreased to $600, fairly than $20,000/200 sales. Having said that, the IRS announced on Dec. 23, 2022 that this tax period would be addressed as a transition yr, maintaining the old threshold restrictions in area.

From the IRS:

“Even although the Form 1099-K lessened reporting necessity for 3rd-celebration settlement companies was delayed, some people today could however receive a Form 1099-K who have not acquired 1 in the previous. Some men and women may possibly acquire a Type 1099-K for the sale of particular merchandise or in situations the place they received a Form 1099-K in error (i.e. for transactions between buddies and family, or expenditure sharing). IRS is updating direction to immediate taxpayers to report these eventualities on the Sort 1040, Plan 1, for tax year 2022.”

Retain in brain that if you’re going to acquire Sort 1099-K, you really should get it by January 31. 3rd-social gathering payment processors are authorized by legislation to send out the variety to you electronically or by mail.

What need to you do with Variety 1099-K?

If you do get Type 1099-K, the initial issue you should really do is examine it to your personal financial information. It is not unheard of for payment processors to make a blunder. If they accidentally report to the IRS that you built more revenue than you actually did, you could get stuck on the hook shelling out taxes on money you did not basically gain!

Before you fear if this amount doesn’t match, continue to keep in intellect a few of items. Form 1099-K only usually takes into account your gross revenue. For that motive, it does not contemplate or report:

• Expenses (i.e. PayPal fees, marketplace costs, and many others.)
• Refunds and returns
• Delivery and postage
• Business expenses like packaging provides, etcetera.

If you ascertain that your 1099-K is incorrect, call the third-get together payment processor that issued it right away. If you have identified that your 1099-K matches your very own documents, then place it up for safekeeping. This is an informational return, so there’s no have to have to do everything else with it. Your payment processor has now sent it on to the IRS.

Linked: IRS FAQs on payment card and 3rd-social gathering network transactions

Sort 1099-K for GoDaddy Payments buyers

To enhance the tax reporting encounter for our buyers making use of GoDaddy Payments, we have automatic the Kind 1099-K procedure. With this rollout, GoDaddy Payments shoppers will be equipped to accessibility and obtain a PDF/digital duplicate of their Variety 1099-K from the new Tax Center in the Payments Hub.

What will the IRS do with Sort 1099-K?

Variety 1099-K is intended to assure that we’re all spending our reasonable share of money tax. So if a third-get together payment processor experiences that you created $75,000 in cash flow, whilst you tell the IRS you only designed $74,000 in cash flow, you will need to have the fiscal information and documentation prepared to again up any discrepancies. Normally, your tax return could be red-flagged for even further scrutiny.

Tax season can sense tense for little business homeowners, so hopefully this manual has assisted to lose some gentle on Form 1099-K and the steps you may need to have to choose forward of filing. And, if you are intrigued in far more automation in the future for your Form 1099-K, GoDaddy Payments has you covered.

The above content material ought to not be construed as lawful or tax guidance. Generally consult with an lawyer or tax experienced with regards to your distinct authorized or tax situation.