If you started a business in 2012, you might want to know about Form 1099-K, because the IRS introduced the form in 2011. The 1099-K form reports third party network transactions, including payment card receipts, checks, credit card payments, and cash payments. The information you record on your 1099-K needs to mirror your income tax return.
What to Report?
Business owners need to report, both annual and monthly, the gross amount of reportable payment transactions for each payee, including their name, address, and taxpayer identification number.
What Will the 1099-K Achieve?
The IRS brought in this new form to increase tax compliance among businesses and individuals, and assist in obtaining information from third parties. The information on Form 1099-K helps the IRS to determine any income under-reporting, which is the most common tax fraud scheme.
When the IRS Spots Inaccuracies
If the IRS spots inaccuracies between what a taxpayer's Form 1099-K and their income tax return, it will send a notice. The most common inaccuracy is related to under-reported gross receipts. It is strongly encouraged that taxpayers check the figures on the IRS notice, their income tax return, the 1099-K form, and all payment/merchant cards and third party transactions. If there is under-reporting, hire a tax professional to resolve the issue.