What is that this Kind 1099-Okay I obtained?
It’s tax season and that signifies that all method of mysterious tax varieties may start showing in our mailboxes. The tax varieties that small enterprise house owners find yourself with may be much more perplexing — particularly if you happen to’re new to entrepreneurship. What the heck is that this 1099-Okay type? Why did you obtain it? What does all of it imply?
We’ll cowl all of those questions beneath.
What’s Kind 1099-Okay?
Kind 1099-Okay debuted again in 2012 when the federal government was searching for extra funds (aka acquire extra taxes) after the 2008 monetary disaster.
Third-party cost processors equivalent to PayPal, Amazon and Stripe are required to difficulty Kind 1099-Okay 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. Nowadays, these third-party cost processors are required to ship type 1099-Okay to each companies utilizing their platforms and the IRS.
In different phrases, type 1099-Okay is the federal government’s approach of monitoring how a lot cash actually passes by on-line cost processors equivalent to PayPal, Amazon and Stripe.
Associated: Are you making enterprise taxes extra sophisticated than they must be?
Who receives Kind 1099-Okay?
Kind 1099-Okay has been round since January 2012, however you may not have obtained it. That’s as a result of it’s a must to meet some specific criteria with the intention to get the shape. Third-party cost processors are required to ship type 1099-Okay to individuals who:
- Made greater than $20,000 in gross sales quantity by that particular cost processor.
- Remodeled 200 gross sales by that particular cost processor.
Notice: In 2021, it was determined that the brink for 1099-Okay varieties had been lowered to $600, somewhat than $20,000/200 gross sales. Nonetheless, the IRS introduced on Dec. 23, 2022 that this tax season can be handled as a transition 12 months, conserving the outdated threshold limits in place.
“Although the Kind 1099-Okay lowered reporting requirement for third-party settlement organizations was delayed, some people should obtain a Kind 1099-Okay who haven’t obtained one prior to now. Some people could obtain a Kind 1099-Okay for the sale of non-public objects or in conditions the place they obtained a Kind 1099-Okay 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.”
Needless to say if you happen to’re going to obtain Kind 1099-Okay, 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 must you do with Kind 1099-Okay?
If you happen to do obtain Kind 1099-Okay, the very first thing you must do is examine it to your personal monetary information. It isn’t unparalleled for cost processors to make a mistake. In the event that they unintentionally report back to the IRS that you just made more cash than you really did, you may get caught on the hook paying taxes on cash you didn’t really earn!
Earlier than you are worried if this quantity doesn’t match, take into accout a few issues. Kind 1099-Okay solely takes under 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-Okay is inaccurate, contact the third-party cost processor that issued it instantly. If you happen to’ve decided that your 1099-Okay matches your personal information, then put it up for safekeeping. That is an informational return, so there’s no have to do the rest with it. Your cost processor has already despatched it on to the IRS.
Associated: IRS FAQs on payment card and third-party network transactions
Kind 1099-Okay for GoDaddy Funds prospects
To enhance the tax reporting expertise for our prospects utilizing GoDaddy Funds, we now have automated the Kind 1099-Okay course of. With this rollout, GoDaddy Funds prospects will have the ability to entry and obtain a PDF/digital copy of their Kind 1099-Okay from the brand new Tax Middle within the Funds Hub.
What’s going to the IRS do with Kind 1099-Okay?
Kind 1099-Okay 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, that you must have the monetary information and documentation able to again up any discrepancies. In any other case, your tax return could possibly be red-flagged for additional scrutiny.
Tax season can really feel aggravating for small enterprise house owners, so hopefully this information has helped to shed some gentle on Kind 1099-Okay and the steps you might have to take forward of submitting. And, if you happen to’re curious about extra automation sooner or later on your Kind 1099-Okay, 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 state of affairs.
