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 house owners find yourself with may be much more perplexing — particularly in the event you’re new to entrepreneurship. What the heck is that this 1099-Ok type? 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 cost processors reminiscent of 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 pondering 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 type 1099-Ok to each companies utilizing their platforms and the IRS.

In different phrases, type 1099-Ok is the federal government’s approach of monitoring how a lot cash actually passes via on-line cost processors reminiscent of PayPal, Amazon and Stripe.

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

Who receives Kind 1099-Ok?

Kind 1099-Ok has been round since January 2012, however you may not have obtained it. That’s as a result of you must meet some particular standards with a view to get the shape. Third-party cost processors are required to ship type 1099-Ok to individuals who:

• Made greater than $20,000 in gross sales quantity via that particular cost processor.
• Revamped 200 gross sales via that particular cost processor.

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

From the IRS:

“Although the Kind 1099-Ok decreased reporting requirement for third-party settlement organizations was delayed, some people should obtain a Kind 1099-Ok who haven’t obtained 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 obtained a Kind 1099-Ok in error (i.e. for transactions between family and friends, or expense sharing). IRS is updating steerage to direct taxpayers to report these situations on the Kind 1040, Schedule 1, for tax 12 months 2022.”

Remember the fact that in the event you’re going to obtain Kind 1099-Ok, you must obtain it by January 31. Third-party cost 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?

If you happen to do obtain Kind 1099-Ok, the very first thing you must do is evaluate it to your personal monetary information. It isn’t exceptional for cost processors to make a mistake. In the event that they by accident report back to the IRS that you just made extra money than you truly did, you could possibly 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, consider a few issues. Kind 1099-Ok solely takes into consideration your product sales. For that motive, it doesn’t take into account or report:

• Charges (i.e. PayPal charges, market charges, and many others.)
• Refunds and returns
• Transport and postage
• Enterprise bills like packaging provides, and many others.

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 information, then put it up for safekeeping. That is an informational return, so there’s no must do the rest with it. Your cost processor has already despatched it on to the IRS.

Associated: IRS FAQs on cost 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 have now 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 Middle within the Funds Hub.

What is 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 earnings tax. So if a third-party cost processor reviews that you just made $75,000 in earnings, when you inform the IRS you solely made $74,000 in earnings, you have to have the monetary information and documentation able to again up any discrepancies. In any other case, your tax return may very well be red-flagged for additional scrutiny.

Tax season can really feel irritating for small enterprise house owners, so hopefully this information has helped to shed some mild on Kind 1099-Ok and the steps it’s possible you’ll must take forward of submitting. And, in the event you’re curious about extra automation sooner or later on 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 lawyer or tax skilled relating to your particular authorized or tax scenario.