Red Flag on Business

 Today TaxMama hears from RW in the TaxQuips Forum who is concerned about the new 1099-K reporting. “I am faced with either closing my e-commerce accounts or getting a tax ID number. I have no problem getting the number and making my business legitimate. But will this send up a red flag to the IRS to check out the last 3 years of unreported income? It wasn’t a lot – probably $400 a year.”

 Paul Clausen answered RW while I was gone.

Paul said, “In my opinion it is unlikely that reporting your small e-commerce income going forward will generate a red flag for the IRS to examine your prior year returns. I don’t certainly think that is a good justification to close up doing business just because your income will be reported in the future. Yes, you should report it as required, but you shouldn’t be needlessly concerned about past years.

When you say $400 a year, that is really going to be below what the IRS wants to target. Isn’t this $400 your gross sales anyway? Wouldn’t your net income be less than that?”

Paul is right. In fact, with profits of under $400, the business would not even be subject to self-employment taxes. Besides, with sales of about $400 or so, the business was probably operating at a loss. So RW didn’t get to take advantage of using his losses.

And remember, you can find answers to all kinds of questions about the new reporting rules, and other tax issues, free. Where? Where else? At

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