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Push tax extension; Hello 1099-K!

Remember the battle in Congress at Christmas over extending the payroll tax reduction? Get ready – tomorrow is Feb. 1, so let the battle begin – again!

The Marine Retailers Association of the Americas last week signed onto a letter by the “Broad Tax Extenders Group” (1,500 businesses, associations, community development groups, and non-profits) and delivered it to every member of Congress. It urged another extension of the payroll tax reduction that expired at the end of 2011. You’ll recall Congress extended it only until Feb. 29, 2012.

The letter called on Congress to act now to continue the extension, citing wide-ranging benefits to taxpayers, jobs and the broader economy. “Failure of Congress to act in a timely manner on this will cause more economic instability and put consumer confidence back in the toilet,” says Larry Innis, MRAA’s Washington lobbyist, “and that’s obviously the last thing we need in the boating industry right now.”

MRAA members, indeed the whole marine industry, should tell their congressional representatives that, while we support much-needed work on a comprehensive tax reform plan, a seamless extension of the expiring payroll tax provision cannot be held up waiting for some big reform package we’re never going to see this year! Come on, Congress hasn’t even been able to pass a required federal budget in more than three years!

Here comes your new 1099-K

If you haven’t already, you will be getting your 1099-K form, a new IRS information return that will come from your credit-card processors (debit & credit cards) and/or third-party payment networks (PayPal, Google Checkout, etc.) The 1099-K will document all 2011 transactions processed for you as a retailer if you had more than 200 such transactions and $20,000 in annual gross receipts. Of course, in keeping with the IRS tradition of paperwork, some 53 million 1099-Ks will likely be issued.

The 1099-K law was signed by President George W. Bush in 2008, but is just now taking effect. Electronic payments are a growing part of our economy. Up to now, they’ve never been officially reported to the IRS — people were on their honor to report this income. Now, all businesses will get 1099-Ks, not just small businesses. While larger businesses have tax teams to handle such matters, unfortunately, most small business people like dealers presumably don’t. Enter probable hassle.

The IRS says it’s all pretty simple. In the top box of your 1099-K will be the total gross revenue processed by your provider. Beneath should be a monthly breakdown. The IRS will look at the gross sales amount reported on the 1099-K compared with the total gross receipts reported on your tax return. The amount on the tax return has to be at least as much as what’s reported on the 1099-K.

Hold the phone! These amounts reported to the IRS are gross sales numbers. But, generally, businesses never actually make their gross sales because of refunds, frauds, exchanges, and returns. None of those expenses will be taken out of the reported gross sales amount. Further, businesses don’t pay taxes on gross income but on net income. So, welcome to what I call the IRS “hassle factor” — it will be incumbent on you to take the gross amount reported and capture all the related transaction fees, charges, returns, and other expenses in your total tax filing. Or, you’re going to pay more tax than you should.

In the end, this may not be the biggest headache if you have good digital record keeping and you’ve been determining all along the correct income and reporting it. But, if you don’t have a good digital record-keeping system, this could be a nightmare this time around, and an even bigger reason why you want to move to a good system now.

Comments

3 comments on “Push tax extension; Hello 1099-K!

  1. enginecom

    And we thought the TSA was the only government agancy to provide colonoscopies! The problem is the government trusts nobody and asks us to trust them. We know where that is leading to the errosion of liberty. The Demoncrats and the big government Republicans need to be excised from congress. The TEA Party reps will be what saves us from big brother. We need a Congress and POTUS who believes in the free market and less regulation. Ron Paul seems like the obvious choice for small government. Unfortunately he is not electable. Romney is the answer to business and regulation nation. OMG = Obama Must Go. Spread the word.

  2. Capt'n Bill

    I have to say I was very surprised to see that 2% drop on the employee SS tax earlier in 2011. Correct me if I am wrong, but those of us who are paying this tax ALREADY HAVE A JOB! My employees and I are more concerned about SS being funded – in case you weren’t aware, as we boomers begin to retire, the money we have paid into this ‘benefit’ is drying up. To summarize, the people who HAVE jobs actually ARE able to pay this tax. It is the ones who do NOT have a job who are hurting.
    Another thing – I was very disappointed to see some of the items in the job bill. A $4000 credit to hire someone? Are you crazy? Do you honestly think I am going to hire someone just because I get a tax credit? Business 101 – When your workload exceeds your labor capacity, you hire more workers. Period. We don’t need a credit or incentive to hire. If we are loosing business because we can’t produce it, it would be foolish not to hire someone to keep that business. If you want to see employment growth, you are going to have to change the climate so that it makes economic sense for businesses to manufacture here, not in Asia or Mexico. You will not see any meaningful employment growth here until business begins repatriating their manufacturing base back to this country.
    If you want to save some money, get rid of the huge number of Border Patrol agents you have every 150 miles along I-90 – They are worthless, un-needed, and a total waste of money. Their day on the Northern Border consists of hasseling the very people that pay their wages because they have to justify their existance. There are thousands of examples like this that can be shaved from government. For example, My daughter can retire from the Dept of State in her mid 50′s! I get a SS Statement saying my retirement date is moved back to 66 or 67!
    Extending employment benefits is a touchy subject, and we all feel bad for those without a job, but I think going beyond a year is just wrong. We are creating a new welfare class, a new entitlement. If joblessness goes beyond a year, I think people should at least do some work for that money. We have bridges that are being replaced because there is not enough money to paint them, but somehow there is enough money to tear out the old and put in new.
    What this country needs is a dictator. A GOOD Dictator, like a taskmaster parent, that, once the country is in order, gives it back to the people to ruin again.

  3. Capt'n bill

    Sorry if my comment above sounds like a rant, but I guess actually it is! I copied this from a letter I sent my congressman last month.

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