December 29, 2011
By Outright.com
There are two kinds of posts that are inevitable this time of year. One is the never-ending barrage of holiday posts, telling you everything and anything you would ever want to hear about buying and selling. The other, of course, is the end-of-the-year-get-ready-for-tax-season post. We hate to tell you, but you’re reading the latter!
Wait, though, before we click away for another year-end best music list. This tax season blog post at least has a focus, and that’s to tell you all about the PayPal 1099-K.
Is It a Fancy New Car?
Unfortunately, no. The tax form PayPal 1099 is a new form that PayPal uses to report earnings to their users. If you have an online store, for instance, and you collect your earnings via PayPal, you may receive the 1099 tax form in the mail in early 2012.
Before, you would simply perform the task of figuring out your taxes owed with no interference from PayPal. They were simply a way you would bring in the money from your customers. Now however, due to new legislation, the IRS requires PayPal to report earnings. Since their earnings come from users like you, they now will send out the new 2012 1099k for online sellers.
That is, if you’re qualified. You see, not everyone gets the new form, as it’s for a very specific subset of sellers. There are two requirements you must meet to get the new 2012 1099s for online sellers.
- Must make over $20,000 of sales online in 2011
- Must have made that $20K in 200 or more sales
If you hit those two requirements, then you’re going to receive the form in the mail come January or so. If not, then it’s business as usual.
What Do I Do?
Well, it turns out, not much. The only real difference is PayPal is now telling you how much you made in 2011 instead of you having to figure it out on your own.
But PayPal isn’t infallible. They may get it wrong or make a mistake, which is why it is vital that you keep good records of each and every sale and expense in your business. Why we say it’s a good idea this year, however, is you don’t want to end up paying more than you should. Since this is PayPal’s first year sending the new 2012 1099 instructions out, there may be a hitch or two. You just want to be prepared.
Tracking expenses is doubly important as the 1099 doesn’t track that at all. You are still required to keep accurate records of everything you pay out to keep your business afloat. If you don’t accurately report it all, you’ll either pay more in or risk being audited – neither of which is any fun!
This guest post was brought to you by Outright.com. For more about the PayPal 1099-K and other tax time advice, visit the Outright Tax Center!
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