It’s tax season and that implies that all method of mysterious tax kinds would possibly start showing in our mailboxes. The tax kinds that small enterprise homeowners find yourself with might be much more perplexing — particularly when 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 Kind 1099-Ok?

Kind 1099-Ok debuted again in 2012 when the federal government was searching for extra funds (aka accumulate extra taxes) after the 2008 monetary disaster.

Third-party fee processors corresponding to PayPal, Amazon and Stripe are required to problem Kind 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 fee processors to gather cash weren’t paying taxes on that revenue. Nowadays, these third-party fee 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 manner of monitoring how a lot cash actually passes by means of on-line fee processors corresponding to PayPal, Amazon and Stripe.

Associated: Are you making enterprise taxes extra difficult than they have to be?

Who receives Kind 1099-Ok?

Kind 1099-Ok has been round since January 2012, however you won’t have acquired it. That’s as a result of it’s important to meet some particular standards in an effort to get the shape. Third-party fee 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 fee processor.
• Revamped 200 gross sales by means of that particular fee processor.

Word: In 2021, it was determined that the edge for 1099-Ok kinds had been lowered to $600, fairly than $20,000/200 gross sales. Nevertheless, the IRS introduced on Dec. 23, 2022 that this tax season could be handled as a transition 12 months, protecting the previous threshold limits in place.

From the IRS:

“Despite the fact that the Kind 1099-Ok lowered reporting requirement for third-party settlement organizations was delayed, some people should still obtain a Kind 1099-Ok who haven’t acquired one up to now. Some people could obtain a Kind 1099-Ok for the sale of non-public gadgets or in conditions the place they acquired a Kind 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 eventualities on the Kind 1040, Schedule 1, for tax 12 months 2022.”

Needless to say when you’re going to obtain Kind 1099-Ok, it is best to obtain it by January 31. Third-party fee processors are allowed by regulation to ship the shape to you electronically or by mail.

What do you have to do with Kind 1099-Ok?

In the event you do obtain Kind 1099-Ok, the very first thing it is best to do is evaluate it to your personal monetary data. It isn’t extraordinary for fee processors to make a mistake. In the event that they by chance report back to the IRS that you simply made more cash than you really did, you possibly can get caught on the hook paying taxes on cash you didn’t really earn!

Earlier than you are worried if this quantity doesn’t match, take into accout a few issues. Kind 1099-Ok solely takes under consideration your product sales. For that cause, it doesn’t take into account 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.

In the event you decide that your 1099-Ok is inaccurate, contact the third-party fee processor that issued it instantly. In the event you’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 have to do the rest with it. Your fee processor has already despatched it on to the IRS.

Associated: IRS FAQs on fee card and third-party community transactions

Kind 1099-Ok for GoDaddy Funds clients

To enhance the tax reporting expertise for our clients utilizing GoDaddy Funds, we’ve automated the Kind 1099-Ok course of. With this rollout, GoDaddy Funds clients will be capable of entry and obtain a PDF/digital copy of their Kind 1099-Ok from the brand new Tax Heart within the Funds Hub.

What’s going to the IRS do with Kind 1099-Ok?

Kind 1099-Ok is meant to make sure that we’re all paying our fair proportion of revenue tax. So if a third-party fee processor studies that you simply made $75,000 in revenue, whilst you inform the IRS you solely made $74,000 in revenue, it’s essential 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 disturbing for small enterprise homeowners, so hopefully this information has helped to shed some mild on Kind 1099-Ok and the steps you might have to take forward of submitting. And, when you’re considering extra automation sooner or later to your Kind 1099-Ok, GoDaddy Funds has you lined.

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.