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.
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.