MISSOURI TAXGUY Bruce McFarland’srecent “McTax Hangout” online “tv show” discussed the issue of Form 1099-K.
Bruce reported that the IRS justsent out 20,000 letters to small business taxpayers regarding the issue of1099-K income.
IRS Form 1099-K reports “gross”receipts that were “run through” a credit card. This would include sales tax and, for restaurants, tips for waitpersons– and could also include “cash back” requested by customers using debitcards.
So it is obvious that the “gross”receipts reported on a Form 1099-K by a third-party credit card provider is NOTthe same as gross receipts from sales or services received by the taxpayer.
The problem is that, while I do notthink that the 1099-K numbers are to be entered separately on the IRS tax forms(1040 Schedule C and E and 1120, 1120-S and 1065), the IRS will use the numbersreported on 1099-Ks for audit purposes, and possibly also for CP-2000 purposes.
What to do?
One solution, which is technicallynot correct, is to include the gross amounts reported on Form 1099Ks in theline for “gross” receipts, and deduct out customer “cash backs” perhaps in theline for “returns and allowances” or along with sales tax remitted and employee tips in the Cost of Goods Sold section on the line for “other costs”, with astatement attached to the return identifying the specifics of these “othercosts”.
Of course with the Form 1099K rules itis more important than ever for the small business owner to keep super-detailedrecords of all receipts and disbursements.
TTFN
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