With the first bit of 2012 over, tax season is not an immediate concern for many small business owners. But that doesn't mean we can forget about the 1099-K until next January 2013 when the new 1099-K form comes in the mail, going on our way running our business with no thought to expediting small business tax preparation. If you've already survived one year of this form you probably have a few ideas about how to make dealing with it easier, but it's a good idea to spend some time working on your tax and accounting strategies to be sure you're prepared.
The 1099-K just creates another opportunity for people to fail to maximize their tax deductions. This form is the IRS' way of making it more difficult for people who sell online to hide their income. When an eCommerce site or payment gateway like Paypal submits a 1099-K for you next tax season, they will report only on the gross value of all online payment transfers they processed for you. If you're not prepared to report relevant deductions from this, including processing fees, shipping, and return values, on top of regular business deductions, you're going to get taxed on a much higher income and pay more than you actually owe.
So the most important thing to do as far as preparing for next year's 1099-K is have good bookkeeping strategies in place. This requires more than just tracking income, expenses, and transfers, especially for companies that do some portion of their business offline and expect to receive a 1099-K. You need to keep expenses that supported online business separate from other expenses if possible. So things like the cost of goods become slightly more complicated.
Furthermore, most accounting tools will track things like returns as a transfer in. Since it's not actually an expense, but rather the elimination of income and the return of the good, proper accounting would identify and short the transaction as such. But this is going to resort in your numbers for total income value for the year being different from the 1099-K numbers. That is how it should be, but you need to be prepared with the data for specific transactions like returns that lead to this phenomenon, or you won't deal with it correctly when April rolls around.
The next 1099-K will be much less troublesome for many businesses, not that they understand what it means and how to deal with it. But the best way to ensure that you make the most of tax season is by being prepared and having a plan, even if you know what to expect.
With a While Until the Next 1099-K Comes, Small Business Owners Have Time to Improve Their Finances and Prepare. Learn More about 1009-K Accounting at http://www.outright.com
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