Residents of the Dallas and Fort Worth area who make their income selling online merchandise better not ignore that official-looking form they got in the mail.
Tax agencies — the Internal Revenue Service, in particular — are watching. And with tax regulations seemingly becoming more complicated each year, it could be worthwhile to consult with a tax attorney to make sure all tax preparations are done correctly.
Thanks to new regulations, collectors of online payments are required to send people who took in more than $20,000 in more than 200 combined transactions a 1099-K form. Such collectors include PayPal, an online service that transfers funds between buyers and sellers, and Amazon.com, which sets up online stores for vendors, then takes in the money for them. Credit card companies that contract with sellers to collect money also must issue the form.
In the past, vendors selling on sites such as eBay or Etsy were trusted to report their sales
More than 50 million forms will be sent out this year, according to IRS estimates. Projections show that the U.S. Treasury could reap about $9.5 billion in revenue over the next 10 years when money transferred electronically is factored in as taxable income.
What this will mean for consumers who shop online isn’t clear. Sellers could increase their prices to cover their tax bills and maintain the same profits. Or, perhaps, sellers will stop offering their merchandise online once they reach the $20,000 mark.
One thing is certain, however. Sellers cannot ignore the 1099-K form. The IRS will get a copy of it, too. The IRS will compare the amount of sales listed on the taxpayer’s tax forms with the 1099-K to make sure all income is declared. Business owners also will need to carefully track their expenditures to deduct as business expenses as taxes are paid on the net receipts.
Source: Bloomberg Businessweek, “Hiding Income? Look Out, Here Comes the 1099-K,” Karen E. Klein, Jan. 24, 2012