Special-K…1099 that is

Congress is rolling out the reporting red carpet in a big way in 2011 and 2012.  While some of these new reporting requirements do not affect real estate investors directly; for the most part, news of the introduction of each one is already creating plenty of confusion.  With that in mind I’m going to touch on each high profile one briefly as we go so you have some idea of what you can weed out and what is important to your investment business.

You won’t receive the 1099-K for tax year 2010 filings; but, income you earn starting January 1, 2011 is subject to this reporting so this time next year it will be hitting your mail box.  This is a form you will receive; not one you will have to generate.  The form’s purpose is to close the gap on underreported income generated through credit card transactions.  Therefore, payment processors such as credit cards and even Paypal and Amazon will be responsible for issuing them to you.

Now if you are solely a real estate investor then you likely will not receive the 1099-K as there are some limits on who the credit card companies are required to issue them to.  If you have more than 200 transactions totaling more than $20,000 in payments received during 2011 then plan on receiving the 1099-K.  So if even if you have a merchant account with some rents automatic billing through debit cards you probably won’t be affected.  However, if you own a self-storage facility where most of your tenants pay through recurring credit card charges then you should plan for it.

Those more likely to be effected are the many of you who have mastered real estate investing and go the next step by publishing e-books or have affiliate revenue streams from your websites.  If this is significant and you have not been reporting that income then make preparations now to do so (of course it goes without saying that you should have been reporting it already).  A draft of the form can be found here.  You will notice that the form requires monthly break-down of the total income which will allow the IRS to track under reporting of estimated payments if you decide to just report all of the income at the end of the year.

A final thought on this form as well and purely conjecture at this point…given the short-falls in various state revenue coffers and the past attempts to collect sales tax on internet sales this form provides a convenient path of measurement to the states for that as well.  I would expect to see at some point in the near future a similar situation as restaurants have with tip reporting where if the wait staff underreports the restaurant itself is penalized.  It would be very easy for the states to go the same route with this new data filling their in their databases.

Bryan L. Wakefield, MS Acct.

Principal, Corridor Tax & Accounting, LLC

1020 Philip Powers Dr., Laurel, MD 20707

Office: (410) 630-1538  | Fax: (410) 630-1652 | Team@CorTaxAct.com | www.CorTaxAct.com

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