4/3/2012 3:53 PM ET|
Hidden traps in 2012 tax forms
If you sell lots of things online, have mixed-use rental property or keep lots of money in a Swiss bank account, prepare for some questions from the IRS.
Bingo! The new 1099-K forms -- just one of a number of tax-form changes this year -- caught a PayPal seller.
This young man, selling things from his home, did not think of himself as being in business, but he just received a Form 1099-K. It doesn't take into account any of his charge-backs or refunds. This is exactly the kind of person revenue hunters had in mind when they created the 1099-Ks.
The 1099-Ks are one of many new forms aimed at helping the Internal Revenue Service collect more money without raising taxes. This form is issued to eBay sellers and folks who sell things and get paid by PayPal, Visa, MasterCard, American Express, Discover, etc. To get caught by this form, you must have had more than $20,000 in sales or more than 200 transactions. The casual eBay garage-sale-type seller wouldn't get a 1099-K.
For decades, the IRS made only minor changes to tax forms. Generally, they simply reflected tax rates, limits or percentage changes effective that year. But this year, there are important changes to the way you report information -- and additional information the IRS wants from you.
What other new forms or changes will be affecting you?
If you have other income that was not paid to you via credit cards or online payment systems, be sure to report the rest of the income on the next line. If you had refunds or charge-backs, report those as returns and allowances.
A similar line has been added to business returns. However, according to Lynn Freer, enrolled agent, of Spidell Publishing, the IRS 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.
Another line was added for statutory employees. They are a special category of workers whose W-2s have the "statutory employees" box checked. These folks get W-2s, but all their wage income and related expenses are reported on Schedule C. Since withholding for Social Security and Medicare has already been taken on the W-2, these Schedule C profits are not subject to self-employment taxes.
The changes to Schedule D (.pdf file) are of major importance to investors. Schedule D is now simply a summary of data coming from a brand-new form, Form 8949, "Sales and Other Dispositions of Capital Assets."
This new form is designed to reconcile the information reported on the Form 1099-Bs.
The new 1099-Bs are required to include the basis of the securities that were sold. Sometimes, they don't include everything, or the basis is wrong. Investors may have to file as many as six copies of Form 8949 with their tax returns if they get many 1099s for sales of securities.
There are three boxes at the top of the first page of the form, related to short-term capital gains. Another three are on top of the second page, for long-term capital gains. Since you may check only one box on the form, you must use a separate Form 8949 for short- and long-term gains; for brokerage reports with and without the basis reported; and for those reports that don't quite fit into either category (for instance, where some items sold show a basis and some do not).
The good news is, there is now a way to report the sale of personal residences again. The IRS eliminated the "sale of personal residence" form many years ago, but it still chased after people who didn't report the sale. Now you can report the sale on Form 8949 and use a code H to avoid paying tax on the sale.
Codes! Yes, this new form requires you to enter codes. You will find a list of codes on page 10 of the Schedule D/Form 8949 instructions.
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I find it hilarious that our government taxes us on the money we earn from our time (income tax). Then taxes us when we use the money to purchase something (sales tax). And then after using and holding onto said purchase for a while (which more often than not depreciates)... taxes us again if said purchase is sold (labeling it again as income.)
Isn't there supposed to be a law or something against taxing the same thing twice? How about three times?
I never imagined how someone could be earning something that they already had.
If the sale is not for more money than the original purchasing price. There is no reason in hell the government can claim anybody earned any sort of freaking income off of a sale. Yet they are trying to with ridiculous crap like this tax form.
If I actually sold anything online, I'd be filing lawsuit after lawsuit. Somebody needs to put these people in check and restore some balance to this insanity.
And we're the worlds wealthiest nation?!? And our government claims it doesn't have enough money or that people are cheating them out of their slice of the pie? LOL. No need to wonder why nobody in washington DC is talking about how much money they waste.
I wonder how our founding fathers would have thought this little "problem". Oh, wait. This country didn't have income taxes. The government got it's money from taxing foreign business competitors for doing business on our soil. Good thing Clinton pushed through NAFTA. Thank you Obama for pushing through Free Trade with Korea.
Squeeze the American public for every last bit. Destroy industry (like textiles) by shipping that entire business to Mexico. I'm sure the new Free Trade with KIA, oops I mean Korea is going to turn out to be great for Detroit.
God there's so much wrong with this.... bleh
An American Citizen
I do believe the IRS requires you to file, even if your income is criminal, hidden in a foreign country, or otherwise unlawful.
If the IRS gets the government's share, there is no crime reported.
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