Amazon Account Reinstatement and Suspension Prevention

Don’t Be Afraid! It’s Only Taxes: The 1099-K Tax Form Demystified

Don’t Be Afraid! It’s Only Taxes: The 1099-K Tax Form Demystified


As I mentioned in my last post, I’m in admin mode this month: Taking care of taxes, fixing inventory errors and other necessary-but-not-nearly-as-fun activities that keep a business humming along. Today’s post is written by my friend Jennifer Dunn at Outright.com, one of the online software providers I recommend because they provide a simple way to manage your FBA expenses online and experience a less taxing tax time.                                          

The IRS starts taking tax returns on January 31 and many online sellers are already in tax mode. Amazon.com provides a 1099-K for all sellers who sell at least $20,000 a year which hopefully includes YOU for last year. They won’t send it to you; you need to download it from your Seller Central. Go to the “Reports” tab and click “Tax Document Library.” You can download the PDF of your 1099-K there. The report will be available on January 31, 2013 – so keep an eye out.

Here is a copy of my (Cynthia’s) 1099-K for 2011 so you can see what yours will look like. I took out my identifiers:

Undoubtedly by now you’ve heard of the 1099-K, the new-ish tax form creating a ruckus in the ecommerce world. We’ve heard from many online sellers who tells us the last thing they need is new paperwork to deal with. Fortunately, we’ve spent over a year researching and understanding the 1099-K and we’re here to tell you. Take a breath. This one isn’t that bad.

We at Outright thought we would take a second to go over the 1099-K – what it is, what it does, and how it could be helpful. Hopefully this clears the air about this honestly harmless piece of paper and why you shouldn’t worry about it so much.

The 1099-K Bio

The United States has always suffered from a tax gap – the difference between how much income taxpayers actually make and how much the reported to the IRS. With the boom in online selling, policymakers noticed that some people using PayPal, Amazon, eBay and other online payment processors were part of the gap – they, knowingly or otherwise, weren’t reporting all of their income.

Through subsequent legislation came the 1099-K. The form is meant to track the money that businesses collect via online payment processors like PayPal and ecommerce sites like Amazon. These processors are required to send the information every year when tax time rolls around, about the first week of February. Just like with a W-2 from a payroll job, or a 1099-MISC from a contracting job, a copy of the 1099-K is sent to the taxpayer and to the IRS.

What Does 1099-K Do?

Like we mentioned above, the 1099-K is a very simple form, and not at all harmful to your company. It doesn’t add any extra work to your taxes; in fact, it could lighten your load and give you peace of mind.

All the 1099-K does is report how much you made through online sales. That’s it. There are no hoops to jump through, there isn’t any info on your deductions, nor are there mysterious fees or charges. It’s simply how much money you made through online payment processors.

So you can see why anyone stressing about the form undoubtedly had some misinformation come their way. It’s one thing to get a new tax form that makes your head explode, but another when an IRS form actually helps you!

What Do I Do with 1099-K?

So what good does it do you? For starters, the 1099-K can give you a clear number when you need to know how much you made over the year. Ideally you should be tracking your own sales, but if not, you can use the total on the 1099-K as an idea before you perform your own calculations.

Speaking of how much you made, this actually affects whether you receive the form or not. To receive the 1099-K, you must have made $20,000 through online sales. Also, you must have made that $20,000 through 200 or more transactions. If you don’t meet both of those requirements, you don’t get the 1099-K form.

If you do receive it, it’s time to get to work. Remember since the form only has your sales total on it you have to figure out how many deductions and exemptions you have. If you don’t, you may end up paying way more than you should, 1099-K or not! Special note: The 1099-K also doesn’t take your refunds or shipping costs into account. It only accounts for the money you collected. So be especially sure that you have recorded every single business expenditure, or you could find yourself overpaying come tax time.

If you still need help, may we suggest using Outright to get a better idea how much you owe on taxes and the like? It can take the rest of the guesswork and headache out of figuring out your taxes so you can get back to making products and selling them.

Look for the 1099-K form on January 31, 2013. After you’re done with it, simply file it away for your records and you’re all done until next year!

Have more questions about 1099-K? Ask your tax questions over at the Outright Community!

 

If you would like to see a report that lists all the Amazon fees, shipping and other expenses, go to “Reports” and “Payments.” On that page select “Date Range Reports” near the top of the page. Select the “Generate a Report” button and it will give you options. I created quarterly reports for my CPA this way so we could prove my expenses to the IRS. Of course I had other expenses like packing supplies, etc., which I track year round in my accounting package.

By the way, if you sell in other ways on Amazon, the 1099-K does NOT cover these distributions. In other words, I’m an author, I have a Kindle blog and I am an affiliate of Amazon.com but none of these distributions are covered in the 1099-K. I use other reports to track these distributions from Amazon.

Selling on Amazon.com is one of three completely different businesses I run and perhaps the easiest thanks to their great reports.


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12 Comments
  • Terri Churchill
    Posted at 13:55h, 16 January Reply

    Cynthia,
    Thanks, once again, for making it so easy to understand!!
    Terri

  • Franni
    Posted at 21:58h, 20 January Reply

    Thanks, Cynthia, for very important info’ and for explaining it so well.

  • Cesar Papa
    Posted at 13:18h, 21 March Reply

    In the 1099-k tax document interview i entered llc as my fed. tax class. It then asks me (with a drop down menu) to select my type (of llc) the 3 choices (can’t leave it blank) are:
    1. s-corp
    2. c-corp
    3. partnership
    My problem is that i am not any of those 3. Amazon has no answers for me, and the irs says that i am not any of those 3. Which should a standard llc choose?

    • Cynthia Stine
      Posted at 21:58h, 21 March Reply

      Cesar,

      An LLC is a hybrid between a corporation and a partnership. In your case, put down “partnership.”

      Cheers,
      Cynthia

  • Bob
    Posted at 20:30h, 03 April Reply

    Wow you’re one knowledgeable lady. I have benefited so much from the valuable information on your website and surprisingly the info isn’t boring. Really appreciate it and hope you continue blogging about internet commerce.

  • katherine
    Posted at 18:08h, 15 October Reply

    Great article. Thanks for the info, it’s easy to understand. BTW, if anyone needs to fill out a blank IRS 1099 form,I found a blank form here http://goo.gl/EO9WsR

  • Wanda gonzalez
    Posted at 12:40h, 14 March Reply

    Hi. I need help. On Amazon I offer free shipping . On my 1099k it’s added as earning. Can I deduct it as a loss

    • Cynthia Stine
      Posted at 18:44h, 02 April Reply

      Wanda,

      This is a question for your CPA. There is also a facebook group called “Accounting We Will Go” that talks about taxes for Amazon sellers. You might want to check them out.

      Sincerely,
      Cynthia

  • Ed
    Posted at 14:25h, 07 May Reply

    I have the 1099-k and I have my statement for the year from Amazon. The gross amount on my 1099-k is different than the total Income amount. I do not know why the numbers do not add up. Can anyone explain this to me.
    Thanks
    Ed

    • Cynthia Stine
      Posted at 12:31h, 13 May Reply

      Ed,

      The 1099 is gross sales before any fees are taken out. Your checks from Amazon already have expenses removed.

      Sincerely,
      Cynthia

  • marino maronati
    Posted at 00:42h, 19 February Reply

    Cynthia, besides the article do not mention anything about this big weird scheme from Amazon! even now you are not answering properly to Ed!
    How can it be legal to 1099 me money I never received!?!?
    So if I buy your services for $50,000 and you discount me $49,000 it is ok to send you a 1099 of $50,000 !?!?
    why you do not say that EVERYBODY should send back a 1099 to AMZ in correspondence of those fees/SERVICES therefore IRS knows the exact amount from whom is due?!!!!
    here it is not few bucks !! IT IS AN AUDIT AWAY FROM THE IRS for crossing weird info !!

    • Cynthia Stine
      Posted at 15:45h, 21 February Reply

      Mario,

      Amazon’s 1099 reflects gross sales only. What you actually receive after their fees, etc., you need to reflect in your own bookkeeping. Amazon is reporting the gross to the IRS. You are reporting the net.

      Hope this helps!
      Cynthia

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