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Form 1099-K–How to Reconcile with QuickBooks

February 10, 2012 | By | 17 Replies More

Well, the January 31 deadline has come and gone, so by now you should have your 1099-K forms in hand. This new form is being sent by all “merchant acquiring entities” as mandated by Section 6050W of the U.S. Internal Revenue Code. That means that eBay, PayPal,  as well as the credit card processing companies must send FORM 1099-k to the merchant (i.e. the business that accepts credit card transactions), and a copy of the form must be sent to the US Government.

May 9, 2013 article from Paul Mancinone in Accounting Today. How the Restaurant industry gets targeted by the IRS because of high percentages of credit card sales. He suspects the IRS is using form 1099-K to select companies for audits. http://www.accountingtoday.com/news/Taxing-Times-Restaurant-Industry-66633-1.html

Feb 14, 2012 update - Maybe I should have titled this “WHY reconcile your 1099-k forms to your accounting records?” According to Spidell Publishing,

The IRS has decided that businesses will not be required to reconcile their gross receipts with merchant card transactions reported on Form 1099-K on their 2012 or later returns.

Steven T. Miller, IRS deputy commissioner for services and enforcement, said in writing to the National Federation of Independent Business that no reconciliation will be required on 2012 or future business tax returns. Last October, the IRS had said that no return entry would be required for 2011 tax returns, although they left a line on the returns saying “For 2011, enter 0.”

Tax professionals have advised their business clients to separately track cash receipts from merchant card payments beginning this year. Clients may now be advised that the requirement has been dropped.

But the WHY question remains. My answer is that you should still check your records and compare them with Form 1099-k to make sure there is not some huge difference that you cannot explain. Read on…

When you receive the forms, verify that the legal name and Taxpayer Identification Number (TIN) reported on the form is correct. This is extremely important because if it does not match, that means that your merchant processor has the wrong TIN for your account with them, and it may cause your business to be subject to a 28% US Federal Income Tax withholding on the gross payments in the future.

The first time you see this form, you’ll likely react by asking yourself, “did I really get paid that much via credit card?” But if you check your credit card fees expense account you’ll probably say, “Yes, I guess I did.”

Then the next logical question is, “How do I know if the amount on this form is correct?” Fortunately, QuickBooks can help. I asked Bonnie Nagayama, CPA and Chief Sleeter Group QuickBooks Consultant to look into it and she suggests this methodology for reconciling the 1099-K forms with your QuickBooks records.

This reconciliation process is really pretty easy assuming you have sales receipts and receive payment transactions that all go through undeposited funds, and assuming that you were consistent about entering the payment method as part of those transactions.

Step 1: Start with the Transaction Detail Report (Reports > Accountant & Taxes > Transaction Detail by Account Report)

Step 2: Modify the report by clicking on the Customize Report button

a) Change the Date to Last Year

b) Change the Total by to Month

c) Add the Payment Method column to the report

Customize Report - Display Tab

d) Filter the Account for Undeposited Funds

e) Filter for Payment method. Select the method corresponding to the 1099-K you are reconciling. For example, is it from Paypal, American Express, or should it include multiple payment types such as Visa and MasterCard together?

Customize Report - Filters Tab

f) Filter for multiple transaction types Sales Receipt and Payment. If you are processing credit cards through QuickBooks using Intuit Payment Solutions, also include CCard Refunds to make the reconciliation process easier.

Step 3: The resulting report will contain all of the transactions for the payment methods and transaction type you selected.

Transaction Detail Report

It might be easier to read if you export the report to an Excel spreadsheet and ask QuickBooks to do “auto outlining” of the exported report. You can find that under the advanced

Exporting to Excel

Send Report to New Excel Workbook

Advanced Settings for Excel Export - Auto Outline

Collapsing the Outline in Excel Report - Monthly Totals

Using this report, review the 1099-K for the total amount in Box 1. Box 5a-5l show the total amount by month. If the total does not agree, you can work on reconciling the amounts by the month instead. Note that in some 1099-k reports, the reported amount is gross receipts without regard to any credits, chargebacks, fees, cash equivalents, discounts, refunds, or any other amounts. Also, the amounts reported may differ from your monthly totals because of a difference between the transaction date per the credit card company compared with the QuickBooks transaction date. There is no need to worry if the amounts differ slightly by month. The yearly total is what you should make sure is right, or very close.

By the way, Outright.com has a compelling online accounting solution that helps eBay merchants track their finances, and they have a solution for reconciling Form 1099-K.

One final note on this. For 2011, the corporate tax return (Form 1065) does NOT require the business to report 1099-k information separately on the return. So that means your gross receipts per your books is what will be reported, just like it always has been. Evidently, the IRS wants to give the 1099-k reporters another year to work out the bugs and implement accurate 1099-k reporting systems.

Bonnie Nagayama, CPA and Chief Sleeter Group QuickBooks Consultant and Laura Messerschmitt (@ljmesser) of Outright.com contributed to this post.

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Category: For Consultants/Accountants, For Small Business Owners, QuickBooks Tips/Tricks, Working with QuickBooks

About the Author ()

Doug Sleeter is a passionate leader of innovation and change in the small business accounting technology world. As a CPA firm veteran and former Apple Computer Evangelist, Doug has melded his two great passions (accounting and technology) to guide developers in the innovation of new products and to educate and lead accounting professionals who serve small businesses. Doug is best known for his expertise in QuickBooks as well as driving the adoption of online accounting and small business process solutions. In the early 1990s, Doug was a pioneer in developing the first QuickBooks seminars in the country and has since built the largest group of accounting software consultants in the small business accounting profession. Doug serves on several advisory boards for technology companies and has consulted with numerous industry leaders, including Intuit, Sage, Apple, and Adobe Systems. CPA Practice Advisor has recognized Doug as one of the "Top 25 Thought Leaders" in the accounting profession for the past several years and he has been named to Accounting Today's "Top 100 Most Influential People in Accounting" each year since 2008. Highly sought for his ability to engage and educate accounting professionals, Doug presents at various accounting events throughout the year, including those held by the AICPA and numerous state CPA societies. Doug also hosts the annual Accounting Solutions Conference, attended by hundreds of accounting professionals, industry leaders, and technology developers.

Comments (17)

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  1. Mike Block says:

    There is a much easier and more practical way to reconcile 1099K forms. Add up all your 1099K forms. Deduct that from your total QuickBooks gross. That is what you report as non-1099K gross. If the non-1099K gross is negative, congratualate the owner on his past success, but tell him that you have to increase the total gross to cover or more than cover the 1099K amounts.

  2. Mike Block says:

    Correction:
    That was IF the non-1099k …

  3. Jim 'Rustler' Ernest says:

    The 1099K will only be sent if the annual gross total exceeds $20,000 and over 200 payments

    The 1099K may have more payments on it than the report does, and the 1099K will right, the 1099K is cash basis, if your reporting is accrual basis there will be a difference – this entry should have used a cash basis report at the start in my opinion

    • Doug Sleeter says:

      You are correct about the 20,000 limit.

      However, this is not a “cash basis” issue because AR is not involved in the report we create.

      However, like I said in the article, there may be diffences between the 1099-k and the QuickBooks report, due to the “transaction date” differences that may occur. When you charge someone’s credit card, the transaction date according to the credit card comapany will sometimes be different from the date on your sales receipt or payment.

    • Carrie Sheret says:

      The 200 transactions and $20,000 threshold only apply to third-party settlement companies (TPSOs) like PayPal.

      AmEx, Discover, MC/Visa merchant services (PSEs) have no such reporting threshold, so the 1099-Ks for merchant payments will include all payments, regardless of amount. http://www.irs.gov/instructions/i1099k/ar02.html

  4. I would first like to actually see a 1099-K for one of my clients, because as to date no client that I work with who takes credit cards has received any. Secondly, based upon their end-of-year reports on the merchant statements, I would like to actually see the amounts add up correctly (or at least within 5%) based upon what was on the monthly reports versus what was reported at year-end for their December statement.

    • Jim 'Rustler' Ernest says:

      My g/f business just got one from Paypal. I ran a report and the total did not match, after a day of head scratching I finally figured out that it was cash basis, and my report was accrual, as soon as I changed the report basis, it was only off $12.

      The issue is going to be, especially in her case since her payments from customers are almost all PayPal, when the 1099K reported payments exceeds the business gross.

      The tax CPAs I have talked to about it, all just say, report actuals and be ready to explain – not something I think should have to be done.

      May have to change to cash basis filing.

  5. Doug Sleeter says:

    Jim, As I said above, the report shouldn’t change between cash and accrual because it only looks at Sales Receipts and Payments. Make sure you recheck the filters.

    Cash/Accural differences only occur when AR or AP is involved.

    • Jim 'Rustler' Ernest says:

      Doug I don’t remember what report I modified or even how, so I may not have pulled the info the same way and perhaps that is the reason I had to change the report type.

      I see your point when looking at how you pulled the info.

  6. Carla says:

    My report shows 0 for each month and 0 for total, what am I doing wrong?

    • Doug Sleeter says:

      Hi Carla,

      Do you record your sales using Sales Receipts when someone pays at the time of sale? And do you record payments from customer invoices using Receive Payment? Do you record the “Payment Method” on those transactions?

      You’ll need to do all of that in order for the report to work. And you need to do it ALL the time for every sale.

      • Carla says:

        I have two different companies; 1) use sales receipts, (banking) make deposits applying the credit card name with each transaction; 2) use invoices and receive payment applying the credit card name with each transaction.

        I believe I have recorded the payments correctly for the report to work.

  7. Good news-”IRS drops credit card paperwork requirement”, http://www.bizjournals.com/phoenix/news/2012/02/17/irs-drops-credit-card-paperwork.html

    However, reconciling QuickBooks-posted merchant services receipts with merchant statements should be a regular business process for any business that accepts credit cards.

    • Doug Sleeter says:

      Hi Joan,

      I saw this article, and several other press articles, but I cannot confirm the information on the IRS site. I’ll keep looking. It’s not that I don’t trust the information, but I’d like to get right to the source as opposed to quoting news sources.

      This will be great if they do (or have) back off on the reconciliation requirements.

      • Stacey Byrne says:

        Doug, Here is the link to IRS site re: reconciling 1099-K info

        http://www.irs.gov/newsroom/article/0,,id=253979,00.html#q1

        General FAQs on New Payment Card Reporting Requirements

        I received Form 1099-K for 2011. How do I report it on my tax return this year and what are the plans for reporting in 2012?

        IRS announced in October that separate reporting of these transactions for other business receipts or income payments is not required for 2011. Taxpayers should follow the form instructions for reporting their gross receipts or sales. Report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E and F. There will be no reconciliation required on the 2012 Form 1099-K, nor do we intend to require reconcilation in future years. [Added 2/10/12]

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