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IRS to Tax Online Business Starting 2011

Updated on March 10, 2010

 The free ride is over for many online businesses that have never reported profits. Hey, we all knew it would come sooner or later since the mid-1990s. It is actually a surprise that it has taken so long.

Starting 2011. all online businesses will be taxed based on their profit reporting and will use the 1099-K form.  Any bank or other payment settlement company that processes credit cards, debit cards, and electronic payments such as PayPal will have to issue information returns telling the IRS what merchants receive.

Very small merchants won't be issued information returns. "Small" for this purpose means gross sales on merchant cards of no more than $20,000 or 200 or fewer transactions. In other words, reporting is required only if gross amounts for the year exceed $20,000 and there are more than 200 transactions.  So, this is a big out for many small time businesses online. Gross amounts reported for merchant transactions do not take into account any adjustments for credits, cash equivalents, discount amounts, fees, chargebacks, refunded amounts, or any other amounts. It will be up to sellers to report on their returns the full amounts reported to them.

Obviously, IRS is going for big online businesses.

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