Form 1099 Rules for 2011


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Now is a great time to start collecting Social Security numbers and EIN (Employer Identification Numbers) for all of your non-employee workers. You will need to prepare a Form 1099-MISC for every person or non-corporate business structure that provided more than $600 of services for your business in 2011. You also need to report anyone that purchased more than $5,000 in products for resell.

There are some exceptions to this rule, for example, in the case of ‘established retail outlets.’ Without a lot of other definitions, we’re taking the position that you don’t have to report a bricks and mortar retail outlet. But, if you sell to a smaller, home-based business or online business, it should be reported.

You need to complete the forms by January 31, 2012. And you need to send a copy into the government by February 28, 2012, along with the Form 1096 as a summary form.

There is also a new form this year. The much discussed Form 1099-K is finally coming. You might have heard it called the new Pay Pal reporting requirement. Starting 1/1/2011, Merchant Account companies and Pay Pal are required to furnish a Form 1099-K (with copy to the government) to anyone who has $20,000 or more in sales and 200 transactions or more. The amounts reported will be on the cash basis and will include sales tax and shipping & handling.

Chances are there will be a lot of questions, and probably mis-reporting as we move into the new Form 1099-K. It’s never been more important to have accurate bookkeeping. Report this wrong and you’re just asking for an audit.



4 Comments

  1. Diane Kennedy says:

    Doug, GREAT information to know! I just went to look at the Schedule C on irs.gov and you’re right, it’s right there on the face of the form. Enter “0”. My guess is the IRS realized this is going to be a nightmare in reporting and so are trying to be compliant with the Congressional mandate, but practical as well. The IRS has plenty of other problems to worry about right now.

  2. Hi Diane – I was doing some additional research on the new 1099-K and reporting requirements for 2011 income tax returns. The IRS has changed the reporting for 2011 so taxpayers are instructed to enter zero on the line for income from “Merchant card and third party payments.” If you go to the IRS site and search for Schedule C and take a look at the new form.

  3. Diane Kennedy says:

    Doug, I think it’s going to be difficult. I suspect we’ll need to report at least the amount shown on total Form 1099-K as the gross sales (unless gross sales per books are more) and then back out the refunds, credit card fees and shipping costs to report in other places. Plus, that assumes that all the reporting agencies will have correct systems and forms.

  4. I can see the 1099-K reporting being a nightmare to reconcile with gross revenue especially if the majority of a businesses sales are from credit cards. As with any new IRS reporting requirement it will be very interesting how this plays out this coming tax season.

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