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Selling Online? Meet the 1099-K Tax Form

NEW YORK ( MainStreet) -- By the end of January, a few million small businesses will have a new tax reporting form in their hands called the Form 1099-K.

As part of it, payment networks such as Amazon (AMZN - Get Report), eBay (EBAY - Get Report) and PayPal as well as banks and credit card processors are now required to report credit card, debit card and gift card payments, among others, made to merchants for goods and services.

Payment processors must send out annual 1099-K forms to any small business that sells more than $20,000 in goods or services and has 200 payments during the year with any one payment processor, the ruling says.

The Internal Revenue Service ruling that brought the form into being was actually enacted as part of the Housing and Economic Recovery Act of 2008, then pushed back.

Outright.com CEO Steven Aldrich offered tips for small businesses on how to handle the forms.

What prompted the ruling?

Aldrich: More and more revenue was flowing electronically and the IRS has been trying to figure out where revenue is showing up that's currently not tracked. ... The next question from Congress was what about all the revenue through credit card companies and electronic commerce payment networks? That was the progenitor: "Let's go after online and offline merchant processing revenue."

But isn't that repetitive for small-business owners that are already reporting the income?

Aldrich: The small businesses that I talk to are doing their very best to be on top of how much revenue they made and report that as part of their tax filings. What this does from a compliance perspective is allow the IRS to match up tax filings with the sources of their revenue.

This is really a verification step that the IRS is putting in place. You might call it a paperwork burden that's being placed on the small business now because the government wants to ensure that they have the ability to verify the amount that the small businesses are earning. I don't think small businesses are avoiding taxes. I think this is an attempt by Congress to identify money in the system: "Let's get a check on the numbers that small businesses are sending."

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