A new Internal Revenue Service rule could make life trickier for most businesses that get paid with credit cards — from online retailers to the local deli.
Whether you make every deal for your business with a handshake or you fastidiously create, execute, and file away every bit of paperwork, you probably don’t like paperwork. And, you’re not alone.
Unfortunately, a new IRS rule may involve even more paperwork for you, if your business gets paid by credit cards.
As the Wall Street Journal reports, this year credit-card companies are required to track the dollar amounts that individual merchants get from credit card transactions. In turn, the credit card companies then report this information to both the IRS and the merchant on 1099-k forms. The IRS made the rule so it’s prepared, but is your business prepared?
If you’ve been reporting your income properly all along, then you have little to fear. However, it does mean a good amount of extra work if you want to be sure that the credit-card company is correct. This means an entirely new accounting protocol for which many firms are simply unprepared … and are likely unaware they’re about to face.
According to Melissa Labant, technical manager at the American Institute of CPAs, the new law "creates an administrative burden to separately account for different transactions — and to break it down month by month if they want to reconcile to the 1099-Ks they receive."
Reference: The Wall Street Journal (November 14, 2011) “New IRS Rule Creates (What A Shock!) More Paperwork”