Did anyone else wake up this morning and almost have a heart attack? I received an e-mail from Paypal overnight which said:

As required by the IRS, we’ve prepared a Form 1099-K for you. This form summarizes the gross payments you received through PayPal for the sales of goods or services during 2011. This form is available on PayPal.com.

I’ve seen notices on Paypal’s website for awhile now talking about this.. But since this form was only going out to people who processed over $20,000 in goods and services sales and completed 200 transactions, I figured I was in the clear.

Boy was I wrong!

It turns out I received over $50,000 through Paypal over the course of 2011.. Most of this was from advertisers who had moved away from paper checks and bank wires. I loved getting paid via Paypal because it saved me a trip to the bank. But the 1099-K has me frustrated. For one thing, there are some companies that issued me a paper 1099, but since they paid me via Paypal, I’m getting hit twice. According to my accountant (who I saw early this morning), he’ll have to file those instances as valid deductions. Sounds complicated..

Let’s face it, the IRS wants their money, and there are probably lots of “part-time” people who never report their side income. So I understand the motiviation behind it. But had this been communicated to us better last year, many of us wouldn’t be scrambling for receipts and invoices now.

And to those people out there who feel like this income doesn’t need to be reported because the 1040 form tells you to enter -0- in the line asking for the 1099-K amount, don’t be stupid! The IRS knows what you funneled through Paypal, and you’re responsible for reporting that amount on your return. (This from the mouth of my accountant) Choose to do otherwise, and you’re likely to get flagged for an audit.

Want to learn more? Etsy.com has more on this topic, as a lot of their members are now dealing with this nightmare..

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