Information on Merchant Accounts,
Ecommerce and Credit Card Processing

January 16th, 2016 by MSI Newsletters

IRS and Taxes

Filed in: Monthly Newsletters |

Happy new year!

In this edition, we wanted to give a quick reminder about processing fees and how they affect a business’s taxes, have a few quick fraud tips for online merchants, and are introducing a limited time new year special. This month we are featuring the Salon Scheduler Clover POS application for salons and other businesses who have to manage customer appointments.

Happy new year and many more,
from all the staff at The Merchant Store

IRS and Taxes

Processing fees and costs are business expenses and are often overlooked by business owners filing their taxes. Make sure to, or have your accountant, deduct applicable processing fees when you file your taxes this year.

1099K / TIN Reporting

In 2008, buried in the middle of the Housing and Economic Recovery Act was a provision that had nothing to do with housing but was a new requirement that banks and credit processors must now report payments to the IRS. The rule, which took effect in 2012, was meant to “improve voluntary tax compliance” by business taxpayers to help the IRS determine whether their tax returns are correct and complete. This is where the 1099-k was born.

Merchants are now required to complete a W9 form for their credit card processor, if in the prior calendar year, they 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

Merchant’s now receive a 1099K statement from their processor detailing the gross sales that they accepted during the previous calendar year. Keep this statement for your tax records.

The amount being reported on the 1099K is very likely to be different than the actual net amount that a merchant processes throughout the year. This is due to the complexities in how the money is reported and that processors generally do not account for voided or canceled transactions, tips, refunds, and other non-sale transactions. We strongly suggest not using the amount directly from the 1099K for reporting actual revenue to the IRS, unless it matches a merchant’s actual sales amount. Instead, use processing receipts or the actual income recorded by your accounting procedures.

Important tips

For legal advice involving reporting your sales on your tax return, we strongly suggest speaking with a qualified CPA or tax attorney.

Merchant who do not file a W9 or the processor is unable to match the submitted information with what the IRS has on file may be subject to 28% withholdings by the IRS. 28% withholding is on gross sales, and occurs when the processor receives a withholding notice from the IRS.

If money is held at any point during the year, the only way to recover it is on the following year’s tax return. If you do have money held by the IRS, keep track of any applicable documentation, and make sure to report the money being held on your tax return. If a business owes taxes at the end of the year, the withheld money is normally applied against the amount owed to the IRS.

If you change your business structure, business name, EIN, or other information required to file your taxes, make sure to notify your processor so they can file the proper paperwork with the IRS. At any time, if the IRS deems that the information your processor has on file is not matching the IRS database, it is possible to be flagged for backup withholding.

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