Thigpen, Jones, Seaton, & Co

Credit Card Sales

By Missy Mullis on September 30th, 2011

If you accept credit/debit or any other electronic payments, you need to read this!

As most small business owners have learned, the IRS giveth and the IRS taketh away!  Thankfully, the regulation set forth by the IRS requiring the issuance of 1099s to all vendors receiving more than $600 in annual payments has been repealed.  However, Congress and the IRS have snuck in another reporting requirement for the small business owner.

Beginning with the 2011 tax filing season, a new line is being added to tax returns to report income received from credit card sales.  Now, taxpayers will be required to separately report credit card sales and cash sales on the tax return.

Credit card processing companies and third party payment networks (such as PayPal), are now required to issue you a Form 1099K, Merchant Card and Third Party Network Payments.  You will receive this form from your transaction processor if you meet both of the following requirements:

• If you process more that 200 credit/debit card transactions in a single year AND
• If the total of the transactions are equal to at least $20,000.

It appears that the IRS has concluded that millions of dollars go unreported each year by sellers of online products and other business owners.  This form will resolve that issue.  The IRS will use the data to compare a company’s total revenue from credit card sales and cash sales separately to the industry average to verify that all revenue is being reported.

No matter what the IRS is trying to accomplish, following the steps below may help to lessen the pain!

• Comply with the request from the processor asking for a W-9 – You may already have received a request from your processor asking you to provide them with a form W-9. Please do not disregard this request. Send the form to your processor as soon as possible.  If you do not comply, then your processor is allowed to withhold 28% backup withholding on the gross amount of credit card income that they process for you.  This could mean a large portion of your funds will be held.

• Locate your credit card processing reports
  Each month your processor issues you a statement that reports, along with additional information, your gross sales, charge backs, and fees.  You may receive these forms either by paper or electronically.  We encourage you to locate these statements and review them with the 1099K when you receive it from your processor in the early part of 2012.  The 1099K will be issued with GROSS payments reported.  Locating and submitting the reports to your accounting professional will assist in properly reporting the deductions for charge backs, returns, fees, etc.

If you have any questions about this article, please contact our office and we will be glad to assist you.

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