It’s tax season and that signifies that all method of mysterious tax kinds would possibly start showing in our mailboxes. The tax kinds that small enterprise house owners find yourself with might be much more perplexing — particularly should you’re new to entrepreneurship. What the heck is that this 1099-Ok kind? Why did you obtain it? What does all of it imply?
We’ll cowl all of those questions beneath.
What’s Type 1099-Ok?
Type 1099-Ok debuted again in 2012 when the federal government was searching for extra funds (aka acquire extra taxes) after the 2008 monetary disaster.
Third-party cost processors comparable to PayPal, Amazon and Stripe are required to subject Type 1099-Ok to sure retailers who use these processors to course of funds.
The federal government’s considering went that maybe retailers who used these third-party cost processors to gather cash weren’t paying taxes on that earnings. As of late, these third-party cost processors are required to ship kind 1099-Ok to each companies utilizing their platforms and the IRS.
In different phrases, kind 1099-Ok is the federal government’s method of monitoring how a lot cash actually passes by means of on-line cost processors comparable to PayPal, Amazon and Stripe.
Who receives Type 1099-Ok?
Type 1099-Ok has been round since January 2012, however you may not have acquired it. That’s as a result of you must meet some particular standards with the intention to get the shape. Third-party cost processors are required to ship kind 1099-Ok to individuals who:
- Made greater than $20,000 in gross sales quantity by means of that particular cost processor.
- Remodeled 200 gross sales by means of that particular cost processor.
Notice: In 2021, it was determined that the brink for 1099-Ok kinds had been lowered to $600, slightly than $20,000/200 gross sales. Nevertheless, the IRS introduced on Dec. 23, 2022 that this tax season can be handled as a transition 12 months, protecting the outdated threshold limits in place.
“Regardless that the Type 1099-Ok decreased reporting requirement for third-party settlement organizations was delayed, some people should obtain a Type 1099-Ok who haven’t acquired one prior to now. Some people could obtain a Type 1099-Ok for the sale of non-public gadgets or in conditions the place they acquired a Type 1099-Ok in error (i.e. for transactions between family and friends, or expense sharing). IRS is updating steering to direct taxpayers to report these situations on the Type 1040, Schedule 1, for tax 12 months 2022.”
Remember the fact that should you’re going to obtain Type 1099-Ok, you must obtain it by January 31. Third-party cost processors are allowed by legislation to ship the shape to you electronically or by mail.
What must you do with Type 1099-Ok?
If you happen to do obtain Type 1099-Ok, the very first thing you must do is examine it to your personal monetary data. It isn’t extraordinary for cost processors to make a mistake. In the event that they by accident report back to the IRS that you simply made extra money than you truly did, you possibly can get caught on the hook paying taxes on cash you didn’t truly earn!
Earlier than you are worried if this quantity doesn’t match, remember a few issues. Type 1099-Ok solely takes under consideration your product sales. For that motive, it doesn’t contemplate or report:
- Charges (i.e. PayPal charges, market charges, and so on.)
- Refunds and returns
- Transport and postage
- Enterprise bills like packaging provides, and so on.
If you happen to decide that your 1099-Ok is wrong, contact the third-party cost processor that issued it instantly. If you happen to’ve decided that your 1099-Ok matches your personal data, then put it up for safekeeping. That is an informational return, so there’s no must do anything with it. Your cost processor has already despatched it on to the IRS.
Type 1099-Ok for GoDaddy Funds clients
To enhance the tax reporting expertise for our clients utilizing GoDaddy Funds, we now have automated the Type 1099-Ok course of. With this rollout, GoDaddy Funds clients will have the ability to entry and obtain a PDF/digital copy of their Type 1099-Ok from the brand new Tax Heart within the Funds Hub.
What is going to the IRS do with Type 1099-Ok?
Type 1099-Ok is meant to make sure that we’re all paying our fair proportion of earnings tax. So if a third-party cost processor stories that you simply made $75,000 in earnings, when you inform the IRS you solely made $74,000 in earnings, it’s essential to have the monetary data and documentation able to again up any discrepancies. In any other case, your tax return might be red-flagged for additional scrutiny.
Tax season can really feel hectic for small enterprise house owners, so hopefully this information has helped to shed some gentle on Type 1099-Ok and the steps you could must take forward of submitting. And, should you’re excited about extra automation sooner or later on your Type 1099-Ok, GoDaddy Funds has you coated.
The above content material shouldn’t be construed as authorized or tax recommendation. At all times seek the advice of an legal professional or tax skilled relating to your particular authorized or tax state of affairs.