The IRS has released the final 2011 Form 1099-K, Merchant Card and Third Party Network Payments, the form credit-card processors and similar firms will use to report the gross amount of transactions they process for both businesses and other organizations. Be aware of two key points:
1. How your firm's reported gross income will be checked out. The IRS has assigned a large number of codes for different types of businesses, and the 1099-K has a place for a merchant category code. Your credit-card processors categorize each business based on what they know about it. The IRS is expected to use the codes to learn more about different types of businesses and to identify those that might be under-reporting revenues based on what similar types of businesses report. Bottom line: Make sure your processors correctly categorize your firm.
2. Your reported gross may include nontaxable amounts. The 1099-K reports gross payments processed for your firm, but the total may include some nontaxable amounts, such as taxes, tips, cash-back and other nonrevenue or nontaxable items. The IRS says business income form instructions will tell you how to subtract those items from the gross to arrive at the amount to include in taxable income. The current plan is to have on business income tax forms a revenue line for the 1099-K amount and to have other lines for subtracting non-income intems.