I thought that I would provide another wake up call to online merchants who accept credit cards, debit cards, or any type of electronic payment. As a reminder, beginning in 2011, merchant account providers are obligated to report their clients' gross income derived from their online activity. Some business folks are not concerned, confident that their record-keeping is completely accurate. Others are uneasy, declaring that Big Brother's reach is becoming too invasive, and that the reporting of gross income does not nearly reflect costs and end profit.
The IRS counters that millions of tax dollars are lost as too many online merchants are not reporting their true income. The powers that be assert that there must be mechanisms in place to get an accurate assessment of true online sales. Moreover, the IRS avers that it will allow for miscellaneous, itemized expenses, such as credits, chargebacks, credit card processing fees, etc. But, of course, this means that some online merchants must utilize better accounting principles, or hire better accountants.
As a result of the IRS initiative, merchants must share their federal tax EIN number and/or their social security number. Failure to do so will result in "backup witholding," starting in 2012. Here, the processor will be mandated to deduct and withold income tax from reportable payments.
Online merchants will soon become familiar with Form 1099-K. Obviously, it's important that the declared gross income match the processor's figure. Again, the deductions must be factored in which will require a lot of attention to detail and number crunching -- particularly for merchants who have a high volume of processing.
Those who only accept credit cards sporadically will not be affected by this IRS mandate to track credit card processing transactions. Specifically, those who accumulate less than $20,000 a year in sales and have less than 200 annual transactions will not be responsible for such reporting.
A word to the wise: Keep accurate records and report income earned and costs incurred. The silver lining of forced tracking is that online merchants will maintain a better credit card processing transaction history.
