Beginning in 2011, credit card companies were required to report business’ credit card sales to the IRS via Form 1099-K. This form reported a business’ total credit card sales for the year, and the form broke that sales figure down into monthly totals.
A substantial problem with this form was that the credit card sales reported on the 1099-K included sales tax and employee tips.
Example: JoJo’s Restaurant has credit card sales (excluding sales tax) of $600,000 for 2011. At the end of the year, JoJo’s Restaurant received Form 1099-K showing credit card sales of $731,400. The reason the sales on the 1099-K is much larger than the actual credit card sales is because it includes sales tax of $36,000 plus tips of $95,400 (assuming a 15% tip rate).
Since the sales reported on Form 1099-K will almost certainly exceed actual sales, businesses were required to reconcile the sales reported on Form 1099-K with their actual sales. The above example was a fairly simple one—imagine if those sales included carry-out sales on which tips are not paid. A point of sale system should be able to capture this information, but for restaurants using cash registers, it will be very, very difficult to gather this information.
Recognizing the hardship this would cause on businesses (plus the hardship on the IRS to actually audit this information), the IRS waived the reconciliation requirement for 2011 tax returns. Based on a recent letter from the IRS deputy commissioner for services and enforcement, Steven Miller (not the singer), to the National Federation of Independent Businesses, the IRS is extending indefinitely the waiver of the reconciliation requirement. Mr. Miller stated, “There will be no reconciliation on the 2012 form, nor do we intend to require reconciliation in future years. (emphasis added)”
Good news! However, credit card companies will continue to issue Form 1099-K. If the sales amount on these forms differ substantially from sales reported on tax returns, you may still want to conduct an informal reconciliation (not included on any tax filings) in case of an audit.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230