New requirements imposed by the Internal Revenue Service this year have pool retailers checking their books with extra care.
For 2011 tax returns, third-party companies that process credit and debit transactions — such as PayPal, Visa and American Express — must report the gross total of transactions they processed each month for each merchant they serve.
In addition to submitting these totals directly to the IRS, payment processors also are required to report them to the merchants whose transactions they processed, via the new form 1099-K. In addition, business tax forms have been updated to include a line item for 1099-K income, which merchants are required to include on their 2011 filings.
“This means they can work out how much cash you process,” said Dale Howard, owner of B&L Pools in Phoenix. “They could look at your forms and say, ‘Your total reported credit card income is the same as your overall total — so we’ve got a problem here.’”
Only businesses that process fewer than 200 payments (or less than $20,000) per year are exempt from these reporting requirements.
The changes are just the latest reflections of a government campaign to close what the IRS has described as a “tax gap” — that is, billions of dollars of income that the agency says businesses fail to report each year.
“The new law gives us an important new tool for closing the tax gap, and also provides business taxpayers better documentation to compute and report their income and expenses,” said IRS Commissioner Doug Shulman.
Form 1099-K itself was introduced in the Housing Assistance Tax Act, a 2008 bill signed into law by President George W. Bush. But the requirements that payment processors actually file the form, and that businesses report its total on their tax returns, were piggybacked onto the Affordable Health Care Act, a bill that President Barack Obama signed into law in 2010.
So far, retailers who’ve been keeping precise records report that the process has gone smoothly. “We’ve received our 1099-Ks, and the totals on them match everything we have on record,” said Joe Lamarre, controller at Patio Pools & Spas, a Pool & Spa News Top Builder in Tucson, Ariz.Meanwhile, smaller retailers said they’re trusting their accountants to make sure everything’s aboveboard.
“Our CPA handles any new forms that come along,” said Dillan Sheffield, owner of Hacienda Pools in Weatherford,Texas.
Others have noted, though, that the form has been helpful for their own internal record-keeping because it breaks down receipts by month, allowing accountants to match these figures with their own month-by-month totals. This makes sense from the IRS’ standpoint as well because it ensures that the rolling years used by payment processors and retailers line up with each other, and with the federal government’s timing.
“It’s actually a pretty handy piece of paperwork,” Lamarre said.