Starting in 2012, you and the IRS will receive Form 1099-K reporting all revenues received through your credit card processing company.  The 1099-K will summarize your company's gross aggregate reportable payment transactions for each month of 2011. Functionally, this means the funds you collect through your credit card processor will be compared to the company's tax return.

The new requirements have a particular impact on retailers.  If your company has both cash and credit card revenues - most retailers fall into this category - the IRS will evaluate your company's total revenues versus industry averages to evaluate the reporting accuracy of cash sales.  Big Brother is certainly watching.

However, a business environment marked by the interconnectivity of data is does not need to be a burden on business owners.  Most business owners spend more than they think in the process of running a business.  Good record keeping is a great way to ensure that expenses are efficiently recorded to counterbalance the new income reporting requirements.

The first step in avoiding future headaches is to ensure that your credit card processor has your Tax Identification Number.  If you fail to provide this information, the credit card processor is required to withhold income tax from reportable transactions in 2012.  The current backup withholding rate is currently 28%, and these taxes will be withheld from your company's daily credit card deposits, so noncompliance is costly.  The States of New York, California, and Hawaii have announced similar requirements; visit www.irs.gov for more detailed information and to see a draft of Form 1099-K.  Search for "1099-K".

Balance Books strives to help business owners make the right decisions from the outset.  If you need to get your accounting processes and records put into order once and for all, contact us at info@balancebooksonline.com for a complimentary evaluation.  It's never too late to systemize your accounting processes.