"I got paid under the table". "I did not claim the money I made selling stuff on eBay".
Well maybe not YOUR credit card because you do not cheat on your taxes or "forget" to report tips - RIGHT??
Remember the Housing and Economic Recovery Act of 2008, a not-so-little piece of legislation, intended to help homeowners avoid being foreclosed on during the housing market collapse? Well, deep inside the dark recesses of this Act is a little known provision that kicks in beginning January 1, 2012. And it could have a huge impact on small business owners who process credit cards.
In an attempt to catch tax cheats, the IRS will now require banks and the credit card processing companies to report purchases to the Internal Revenue Service, who will then, in turn, match the information with income that the business taxpayers report on their federal returns.
Congress thinks they may collect an additional $10 billion in tax revenues from this new cross matching process. But in order to provide the transaction information to the IRS for "cross checking", the processing companies have had to reprogram their systems and create new departments to keep up with the compliance checks. The additional money it will cost to do this may be passed on to the merchants who accept cards. It seems unlikely that the processing companies will simply agree to "eat" the additional expenses.
Originally touted as a way to catch Internet sellers who don't report their sales, any bank or other payment settlement company that processes credit cards, debit cards, and electronic payments such as PayPal will have to issue a new return called Form 1099-K, Merchant Card and Third-Party Payments.
An exception has been granted for very small merchants and they won't be issued information returns. "Small" in this case means a business where annual gross sales on merchant cards are no more than $20,000 or when there are 200 or fewer transactions.
Merchants have to provide their federal tax identification numbers to the companies that process their transactions. Failing to do so, may make them subject to "backup withholding". This means these companies will have to deduct and withhold income tax from reportable payments.
So for anyone with a lucrative home-based business - things just got a little more complicated.
Merchants have to provide their federal tax identification numbers to the companies that process their transactions. Failing to do so, may make them subject to "backup withholding". This means these companies will have to deduct and withhold income tax from reportable payments.
So for anyone with a lucrative home-based business - things just got a little more complicated.
Additional information on this topic can be found at http://www.irs.gov.
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Disclaimer: Tax advice contained herein was not written to be used and cannot be used to avoid payment of taxes or to avoid penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. All information provided is for illustrative purposes only. You should contact an accountant, tax preparer or tax attorney for advice or information specific to your situation. This information is not to be used as a directive.
(The correct answer to our previous question was Somerville, MA. Congratulations to everyone who got it right!)
(The correct answer to our previous question was Somerville, MA. Congratulations to everyone who got it right!)
