Online payment processing has been able to fly under the radar for a few years, but the government decided it couldn't ignore this potential tax gap, which the IRS believes will yield almost one billion dollars in new tax revenue each year. The result is the Amazon, Paypal, or Ebay 1099-K form sitting in many online merchants' mail boxes in January. The cost of moving to accept convenient online payments has created a compliance burden that could be quite expensive for small businesses and single-person companies that do not have a tax expert on staff, let alone an entire team, to sort out the accounting details necessary to respond to the new 1099-K form adequately.
The big deal about requiring 1099-K reporting is that for the first time ever, merchants who make at least $20,000 from online payments in at least 200 such payments a year will have to separate out income received through online payment gateways ranging from digital shopping carts and their credit card companies to Paypal to Sqaure to Etsy. All income was previously reported in one profit and loss statement, which made it easy for business owners to keep track of money coming in as revenue and money going out to cover everything as two distinct categories. Now they'll need to be able to filter the data into four categories - the same previous two from1099-K sources and those from more traditional payments. But the 1099-K that these payment processors, like the Ebay 1099-K, won't indicate anything except monthly and gross payment value.
This means a great deal of extra work over the course of the year to keep track of those separate flows, or failing that, it could result in reporting higher than actual revenue, and thus paying extra taxes. This isn't that much of an issue for large companies that have dedicated accounting and tax staff. But for small companies with one or two people working, it increases the workload significant and can completely undermine such a small business' effectiveness. There is no way to avoid needing to do this extra accounting short of falling below the requirement limits for the value of transfers. The only effective strategy is to find an efficient and hopefully not-to-exhausting way to update bookkeeping methods to account for this change. For small businesses that barely cross the threshold, manually making the change may be viable.
But for those small businesses who will receive and Etsy 1099-K, an Amazon 1099-K, and an Ebay 1099-K, the change is going to be difficult. The best response is to find an accounting tool that can automate at least part of the process so that after some upfront time spent making it work, it can be left to filter and track online payments on its own.
Author Resource:-
Getting an Ebay 1099-K Form Should Signal a Ton of Extra Work in Years to Come, Especially for Small Businesses.
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