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The IRS' new 1099-K form is seen by some as so burdensome for small businesses, two lawmakers are pushing for a new federal law to scale it back.
The 1099-K Overreach Protection Act would prohibit the IRS from fully implementing the 1099-K form, the website TheStreet.com reports. Rep. Aaron Schock, R-Ill., introduced the bill in the House on Feb. 1; Sen. John Thune, R-S.D., is set to propose a similar bill in the Senate.
1099-K forms are meant to give the IRS a better way to keep track of e-commerce transactions, and to make sure merchants' numbers are correct. But critics say it's confusing and unnecessary.
Form 1099-K is only required for merchants with at least $20,000 in annual revenue and at least 200 transactions in a calendar year, the website EcommerceBytes.com reports.
Banks, credit-card companies, and other third-party payment processors must submit 1099-Ks to these merchants, detailing their monthly transactions. Merchants are supposed to reconcile those numbers with what's reported on their taxes.
One concern: "No one quite knows what will happen if the numbers don't match," the head of a tax-accounting software firm told EcommerceBytes.
In fact, there could be legitimate reasons for a discrepancy, critics say, such as:
Perhaps adding to the confusion: The IRS has deferred the requirement for reporting 1099-K amounts on business tax-return forms this year.
So even though your business return has a new line for entering amounts from 1099-Ks, the IRS says to enter "0" on that line for your 2011 taxes only. (1099-K amounts should instead be reported on the line for all gross receipts for 2011, according to the IRS.)
Form 1099-K is set for full implementation next year, but the 1099-K Overreach Protection Act may stop it in its tracks. Until then, it may be wise to consult a tax attorney to make sure your small business tax return is correct.