by Fresh Start Tax | Jan 11, 2017 | Tax Help
What is Form 1099-K?
Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS information return used to report certain payment transactions.
You should get a 1099-K by the end of January if, in the prior calendar year, you received payments:
• from payment card transactions (e.g., debit, credit or stored-value cards)
• in settlement of third-party payment network transactions above the minimum reporting thresholds of
◦ gross payments that exceed $20,000, AND
◦ more than 200 such transactions
Collectively, all payment card transactions and all third-party payment network transactions (once the threshold amounts have been met) are referred to as reportable payments or transactions.
NOTE: The thresholds of greater than $20,000 and more than 200 transactions apply only to payments settled through a third-party network; there is no threshold for payment card transactions.
Did you receive a 1099-K?
If you received a 1099-K, use it to assist you to correctly file your income tax return. Also be sure to retain it for your records.
Remember, you must report all income you receive from your business on your tax return. In most cases, your business income will be in the form of cash, checks, and debit and credit card payments.
Therefore, you should consider the amounts shown on Form 1099-K along with all other amounts received when calculating gross receipts for your income tax return.
Refer to Publication 583, Starting a Business and Keeping Records, for more detailed information and assistance regarding proper record keeping.
Did you receive a letter related to 1099-K from the IRS?
You received one or more of these letters because you may have underreported your gross receipts. This is based on a comparison of your tax return and the Form(s) 1099-K furnished to you that shows an unusually high portion of receipts from 1099-K reportable transactions. It is very important that you respond to the IRS.
The current versions of the letters are reflected on the left side of this page and contain active links to each document. These are periodically updated.
Following are some tips to help you with the inquiry.
• Read the letter thoroughly and complete any worksheets.
• Gather your tax records, including the Forms 1099-K that you received, and determine if you agree with the letter about underreporting your gross receipts.
• Respond to the letter in a timely manner.
• If you have questions or need more time to respond, contact the person listed in the letter.
• If appropriate, consult your tax professional for assistance.
How is the IRS going to use this information?
The IRS uses the information reported from third parties to ensure individuals and businesses meet their tax obligations.
The IRS is integrating the new information supplied on the Form 1099-K into a variety of areas, including its compliance efforts, to ensure fairness and address non-compliance.
All 1099-K activities respect taxpayer rights and provide opportunities for taxpayers and tax practitioners to offer explanations or corrections if they receive a letter, a notice or audit.
by Fresh Start Tax | Jan 10, 2017 | Tax Help
Understanding Your Form 1099-K
Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance.
You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:
• from payment card transactions (e.g., debit, credit or stored-value cards), and/or
• in settlement of third-party payment network transactions above the minimum reporting thresholds of –
◦ gross payments that exceed $20,000, AND
◦ more than 200 such transactions
What does my Form 1099-K report to me?
A Form 1099-K includes the gross amount of all reportable payment transactions.
You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions.
A reportable payment transaction is defined as a payment card transaction or a third party network transaction.
• Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.
• Third party network transaction means any transaction that is settled through a third party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200.
The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.
NOTE: The minimum reporting thresholds of greater than $20,000 and more than 200 transactions apply only to payments settled through a third-party network; there is no threshold for payment card transactions.
What should I do with this information?
It is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K.
You must report on your income tax return all income you receive from your business.
In most cases, your business income will be in the form of cash, checks, and debit/credit card payments.
Business income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.
In addition:
• Check your payment card receipt records and merchant statements to confirm that the amount on your Form 1099-K is accurate
• Review your records to ensure your gross receipts are accurate and reported correctly on your income tax return
• Determine whether you have reported income from all forms of payment received, including cash, checks, and debit, credit and stored-value card transactions.
• Maintain documentation to support both the income and deductions you report on your income tax return
Do any of these statements apply to the Form(s) 1099-K you received?
• The Form 1099-K does not belong to you or is a duplicate
• The payee Taxpayer Identification Number (TIN) is incorrect
• The gross amount of payment card/third party network transactions is incorrect
• The number of payment transactions is incorrect
• The Merchant Category Code (MCC) does not correctly describe your business
If so, consider the following:
• If the Form 1099-K does not belong to you, contact the Payment Settlement Entity (PSE) listed on the Form 1099-K to try determine why you received the document.
The name and telephone number should be shown in the lower-left part on the form. If a PSE name and number are not shown, contact the Filer at the number shown in the upper-left corner on the form. Retain any correspondence with the PSE
• If there is an error on the form, request a corrected Form 1099-K from the PSE. Keep a copy of any corrected Form 1099-K you receive with your records as well as any correspondence with the PSE
What should I do when the total gross payment amount shown on Form 1099-K does not belong to me?
In some cases, the total gross payment amount on Form 1099-K may not belong to you. The following examples illustrate such situations and provide information that may help you determine how to account for the amount of gross payments shown on the Form 1099-K you received.
• If you report your business income on Form 1120, 1120S or 1065 and you receive a Form 1099-K in your name:
◦ If you report your business income on a Form 1120, 1120S or 1065 and you receive a Form 1099-K in your name as an individual (showing your social security number), contact the PSE listed on the Form 1099-K to request a corrected Form 1099-K showing the business’s TIN.
In addition, request that the PSE use the business’s TIN on all future Forms 1099-K. Report the income from the Form 1099-K along with any other sources of income on the appropriate income tax return.
Retain all correspondence with the PSE to show that this error was corrected.
• If you shared your credit card terminal with another person or business:
◦ If you shared your credit card terminal with another person or business, your Form 1099-K will include payment card transactions belonging to the person or business that shared your terminal, in addition to your own payments.
Where required, you should file and furnish the appropriate information return (e.g., Form 1099-K or 1099-MISC) for each person or business with whom you shared a card terminal.
The information return should include the total payment card transaction amount in addition to any other income belonging to the other person or business.
You should retain records of payments issued to each person or business sharing your terminal, including but not limited to shared terminal written agreements and cancelled checks.
• If you bought or sold your business during the year:
◦ If you bought or sold your business during the year, your Form 1099-K may include payments for transactions made before you purchased or after you sold the business.
This can occur when the tax identification number and business name associated with a credit card terminal are not updated with the new owner’s information.
You should request a corrected Form 1099-K from the PSE/Filer listed on the form. Its name and telephone number are on the form. Also keep a copy of corrected Form(s) 1099-K with your records and retain the purchase or sales agreement that substantiates the timing of the ownership change.
• If you changed your business entity structure during the year:
◦ If you changed your business structure during the year, such as incorporating or converting from a sole-proprietorship (Schedule C) to a partnership (Form 1065), or vice versa, and continued using the same card terminal, the amount shown on the Form 1099-K will not correspond with your new entity’s tax return.
Be sure to timely notify your merchant acquirer of any change to the name and tax identification number that links the terminal to your current business structure.
Be sure to maintain documentation to support the correct income and deductions for both business entities.
• If you allow your customers to receive cash back when they use their debit cards for purchases:
◦ If you allow your customers to receive cash back when they use their debit cards for purchases, the Form 1099-K you receive will include those cash back amounts as part of the gross amount of payment card transactions.
Generally, you would not include cash back amounts as part of your business’s gross receipts on your income tax return, nor would you claim such amount paid to a customer as a business expense. It is important that you maintain records of customer cash back activity over the course of your tax year.
• If your business (or businesses) has multiple sources of income:
◦ If your business (or businesses) has multiple sources of income, you may report business income on more than one line of a return or on multiple returns or schedules.
For example, assume you operate a retail business and also have rental income. You accept payment cards for both businesses, but because you have only one credit card terminal to process these transactions, your 1099-K will include gross payment card receipts for both businesses.
You should use your books and records to ensure that all gross receipts are reported on the appropriate line or schedule.
In this case, the gross receipts from the retail business should be reported on Schedule C, and the amounts related to the rental activity included in the rental income reported on the Schedule E.
by Fresh Start Tax | Jan 10, 2017 | Tax Help
Form 1099 K Reporting Requirements for Payment Settlement Entities, just another way for big brother to keep up on us.
Beginning in January 2012, payment settlement entities (PSEs) are required by the Housing Assistance Tax Act of 2008 to report on Form 1099-K the following transactions:
• All payments made in settlement of payment card transactions (e.g., credit card);
• Payments in settlement of third party network transactions IF:
◦ Gross payments to a participating payee exceed $20,000; AND
◦ There are more than 200 transactions with the participating payee.
The IRS Verification Processes
We verify that tax returns are correct and complete using the following processes:
• TIN Matching Program
Use the IRS Taxpayer Identification Number (TIN) Matching Program an Internet based pre-filing e-service, to ensure the Forms 1099-K you submit has the correct TIN. The program permits you to verify the TIN furnished by the taxpayer against IRS records prior to filing information returns.
• Name Control
,The name control (a sequence of characters derived from a taxpayer’s name) and TIN on an electronically filed return must match our records.
Refer to Reasonable Cause Regulations and Requirements for Missing and Incorrect
Name/TINs for more information.
Filing Deadlines & Procedures
Your Form 1099-Ks are due to merchants by January 31. In addition, your Form 1099-K is due to the Internal Revenue Service by the following dates:
• February 28 for paper filing. For more information review General Instructions for Certain Information Returns.
• March 31 for electronic filing using the online FIRE System (Filing Information Returns Electronically). For more information review Publication 1220 (PDF).
by Fresh Start Tax | Jan 9, 2017 | Tax Help
Live Webinar featuring Michael Sullivan, please registar by going to the LatinoTaxPro.org website.
How to Settle with the IRS – Listen to a Former IRS Agent
Former IRS Agent discusses IRS Audits and How IRS Works cases to those who owe back taxes
Also, how to settle with the IRS.
January 11th, 2017 * 12pm PT
by Fresh Start Tax | Jan 6, 2017 | Tax Help
IRS, States, Industry Urge Taxpayers to Learn Signs of Identity Theft
No matter how careful you are, identity thieves may be able to steal your personal information. If this happens, thieves try to turn that data quickly into cash by filing fraudulent tax returns.
The IRS, state tax agencies and the nation’s tax industry ask for your help in their effort to combat identity theft and fraudulent returns. Working in partnership with you, we can make a difference.
That’s why we launched a public awareness campaign called “Taxes. Security. Together.” We’ve also started a new series of security awareness tips that can help protect you from cybercriminals.
Here are a few signs that you may be a victim of tax-related identity theft:
1. Your attempt to file your tax return electronically is rejected. You get a message saying a return with a duplicate Social Security number has been filed. First, check to make sure you did not transpose any numbers.
Also, make sure one of your dependents, for example, your college-age child, did not file a tax return and claim themselves. If your information is accurate, and you still can’t successfully e-file because of a duplicate SSN, you may be a victim of identity theft.
You should complete Form 14039, Identity Theft Affidavit. Attach it to the top of a paper tax return and mail to the IRS.
2. You receive a letter from the IRS asking you to verify whether you sent a tax return bearing your name and SSN. The IRS holds suspicious tax returns and sends taxpayers letters to verify them. If you did not file the tax return, follow the instructions in the IRS letter immediately.
3. You receive income information at tax time from an employer unknown to you. Employment-related identity theft involves the use of your SSN by someone, generally an undocumented worker, for employment purposes only.
4. You receive a tax refund that you did not request. You may receive a paper refund check by mail that the thief intended to have sent elsewhere.
If you receive a tax refund you did not request, return it to the IRS. Write “VOID” in the endorsement section, and include a note on why you are returning it.
If it is a direct deposit refund that you did not request, contact your bank and ask them to return it to the IRS. Search IRS.gov for “Returning an Erroneous Refund” for more information.
5. You receive a tax transcript by mail that you did not request. Identity thieves sometimes try to test the validity of the personal data they have chosen or they attempt to use your data to steal even more information. If you receive a tax transcript in the mail and you did not request it, be alert to the possibility of identity theft.
6. You receive a reloadable, pre-paid debit card in the mail that you did not request.
Identity thieves sometimes use your name and address to create an account for a reloadable prepaid debit card that they use for various schemes, including tax-related identity theft.
by Fresh Start Tax | Dec 6, 2016 | Tax Help
The length of time you should keep a document depends on the action, expense, or event which the document records.
Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.
The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.
The information below reflects the periods of limitations that apply to income tax returns.
Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.
Period of Limitations that apply to income tax returns
1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
The following questions should be applied to each record as you decide whether to keep a document or throw it away.
Are the records connected to property?
Generally, keep records relating to property until the period of limitations expires for the year in which you dispose of the property. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property. If you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid.
You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property.
What should I do with my records for non tax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes.
For example, your insurance company or creditors may require you to keep them longer than the IRS does.
