NOTE: Before anyone sends me anymore e-mails about Form 1099-K, please read this article.)
This week on Small Business Wednesday I want to offer commentary on something I found interesting while reviewing the 2011 Schedule C (the tax form filed by sole proprietors). There are four lines that stand out to me as new this year: Lines I and J, and Lines 1(a) and 1(b). All four lines relate to 1099s.
Lines I and J
Line I asks if the sole proprietor was required to issue 1099s to anyone in 2011. Line J asks if the sole proprietor did indeed issue those 1099s. The IRS is stepping up enforcement of 1099 reporting, so that seems to be the reason for these two lines being added.
Lines 1(a) and 1(b)
These two lines relate to Form 1099-K. Businesses that receive more than $20,000 in credit card payments and that have more than 200 credit card transactions during the year will receive a 1099-K from the credit card company. (NOTE: the $20,000/200 exclusion only applies to payments processed through a third party such as PayPal.)
The Schedule C says Line 1(a) is for reporting “merchant card and third party payments” (which is what the 1099-K reports) but that for 2011, you should enter $0 on that line. This is confirmed in the instructions to the Schedule C. So even if your business gets a 1099-K, it looks like you put $0 on Line 1(a) of Schedule C this year.
Line 1(b) is for all other sales not reported on Line 1(a). For 2011, this would be total gross sales, since Line 1(a) is supposed to be $0.
The IRS said in Notice 2011-89 that credit card companies are to issue 1099-Ks for 2011 but the companies would not be penalized for errors as long as a “good faith” effort was made. This may be why Line 1(a) of Schedule C is supposed to be $0. The IRS is trying to give credit card companies (and itself!) time to develop procedures for proper reporting and tracking of Form 1099-K.
Owners of partnerships and corporations should note that the 2011 versions of Forms 1065, 1120-S and 1120 have not been released yet.
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