In an effort to close the tax gap (the difference between what people pay in taxes and what they are supposed to pay in taxes) the IRS has instituted a new regulation.
If, during the course of your business (which includes selling online on sites like eBay) you:
–received more than $20,000 in credit card payments
–had more than 200 credit card transactions
then you can expect to receive a 1099-K from your credit card processing company (this includes PayPal)
The 1099-K will be an information return, similar to other 1099s that you may receive when it is time to prepare your taxes. Basically, a 1099-K is your credit card processor telling you and the IRS how much you received in credit card payments over the course of the year. The IRS will then expect to see that amount included in your gross sales as a part of your tax return.
I’ve included a copy of the draft of the 1099-K (the final version hasn’t been released yet) so that you can get an idea of what you should be receiving.
If you sell online and do not receive a 1099-K, that doesn’t mean that you shouldn’t report your credit card income. Please see our blog post Online Auctions — tax consequences for more information.
As always, if you have any questions, please give our office a call: 770-478-7424
