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Online sellers brace for new tax requirements

Controversial tax law falls quietly into place with additional IRS paperwork for some online sellers including many small businesses.

After several years of debate and compromise, certain online sellers will now start receiving a new tax form from third-party payment services such as Amazon, eBay and PayPal as well as banks and other types of credit card and payment processors.

The new IRS reporting requirement actually became law in 2008 but wasn’t implemented until tax year 2011 which makes this the first year in which it applies.

Under the law,  various payment services and transaction processors are now required to provide a new Internal Revenue Service (IRS) 1099-K form to any sellers with more than $20,000 in gross sales and more than 200 transactions in a single calendar year.

Considering that small businesses were already required to pay tax on that income as determined by the IRS, the new law is mostly an issue of accounting for small businesses which could also be an opportunity for bookkeeping and tax preparation services.

California-based online accounting service Outright is one of the companies trying to meet the needs of small businesses, especially sole proprietors, who aren’t exactly sure what the new law will mean for their organizations.

According to Outright CEO Steven Aldrich, “Small businesses spend every waking moment thinking about products and customers and many will wonder what to do with this new form (IRS 1099-K) they’ve just received from their third-party online payment provider.”

Aldrich says at a minimum, the new tax forces small business “to keep careful track of their electronic commerce revenue and expenses so they don’t over-report or under-report their actual incomes.”

The new 1099-K forms should start arriving this month.