In an effort to combat financial discrepancies in income reporting, the IRS has become more proactive in looking at non-traditional income sources. Small businesses in particular are subject to this oversight, and PayPal has been the primary target. In fact, some people have begun to call this new tax form the PayPal 1099. It doesn?t effect everyone, though. Are you an occasional seller on Ebay of some of your personal possessions? Don?t have time for a yard sale? Chances are that the 1099-K has nothing to do with you. In fact, the form is only sent out to those online sellers and independents who gross more than $20,000 per year or who have more than 200 transactions from online selling.
Most independent contractors are familiar with the standard 1099 income reporting form. It covers all forms of miscellaneous income, from hobby income to contract work done for firms that you don?t actually work for except on a contract basis. Fortunately, this new 1099 form doesn?t require any more work than previous forms did.
The most important thing about the 1099-K for small businesses and contractors is to track your expenses on a job-by-job basis. If you end up getting audited, you?ll have some tough questions to answer if you don?t have your ducks in a row. Not familiar with accounting practices? It isn?t as difficult as you might think. For one thing, you don?t necessarily need a ledger, though it does help. A standard spiral-bound notebook will suffice, but you?ll need to keep your receipts for expenses where you can find them, as well. Try this trick to keep yourself organized: first, get yourself some notecard dividers that will fit in a shoebox. Use the dividers to organize the receipts you have into jobs. In your spiral notebook, track the expenses and income of the job, along with a reference to the location of the proper receipt. Keeping yourself organized in this manner, and your taxes will be a breeze, as will an audit, should it come to that.
The new PayPal 1099 tax form isn?t intended to discourage small operators from selling off their collection of Beanie Babies and Avon Bottles on Ebay, but rather allows tracking of large companies or people who make their living doing business through the internet. It may seem to be invasive, but one has to remember that the internet is one of the ways terrorists fund their activities. The 1099 form puts up a roadblock to help prevent criminal activities in the same way that the IRS helps to prosecute felons. Did you know that it?s a federal crime not to report income from criminal activities? There?s actually a line on the long form that asks for illegally received income such as bribes and other crimes. Most crooks don?t fill out that form, so when they?re caught, if a case is shaky against them, the prosecutors simply look at their tax records and then get them for tax evasion. Al Capone was perhaps the most famous example.
If you fall within the parameters for receiving a Paypal 1099 form, one will be automatically mailed to you beginning in the 2012 tax year. That means you might see one come January 2013. Make certain that you don?t double up your income by overreporting the PayPal 1099 and other 1099s you receive, any you should be in pretty good shape to avoid any stress when your 2012 taxes need finished.
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