CAUTION to small business:  You might be subjected to needless audits if you don’t note this.  Please read on:

Beginning with the 2011 tax year, the IRS requires businesses to exclude from Form 1099-MISC any payments they made by credit card, debit card, gift card, or third-party payment network such as PayPal.  (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)  However, this requirement is not well known and many small businesses could issue 1099-MISC with errors.

Therefore, if you are a small business and you RECEIVE a 1099-MISC from another business which includes payments made to YOU with a credit card, debit card, gift card, or third-party payment network such as PayPal, these payments will be have been reported to the IRS twice.  THEREFORE, the IRS will expect you to report the payments in income twice.  You will be subjected to an audit and will have to provide evidence that you only received the payment once.

An IRS audit can be costly in terms of accounting fees, clerical costs and lost man hours. TO PREVENT THIS LOSS, check every 1099-MISC that your business receives to insure that it does not include payments made to your company by credit card, debit card, etc. In other words, generally, only payments made by check or cash should be included on the 1099-MISC.

Please contact us if you have questions about this or you believe this might affect you.

CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under
the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS.