The holidays can be a marathon for businesses with all that bundling, selling, wheeling & Daily Dealing over the last month & a half. But as we exit a season known for dancing sugarplum faeries, we enter another filled with (much less cute) numbers dancing on an endless sea of confusing tax forms. Yes—it's officially tax season. The 1099-K tax form is one of the most important forms that small businesses must familiarize themselves with. With the right software at hand, sending, signing & filing your 1099-K can be quick work.
Vagaro businesses can generate their 1099K on either the web or via the Pro App. That removes yet another source of stress for independent workers and booth renters, as well as businesses who employ them.
Below, we’ll provide a checklist of all the things you’ll need to know about the 1099.
What is the 1099-K & Who Gets it?
A 1099-K is used to figure out how much income you received during the year and what kind of income it was. A 1099-K is not the same as a W2, which reports income paid to regular employees whose payroll taxes are withheld from their earnings by their employer. Independent contractors, also referred to as self-employed or freelancers by the IRS, receive the 1099-K form.
The 1099-K reports payments and transactions from credit cards and third-party online platforms, apps or payment card processors. This form is well known to salons, spas, tattoo studios & fitness centers because they employ so many booth renters and independent contractors.
A person will receive a 1099-K if they meet a certain earnings threshold. As of 2021, a law was passed in the U.S. dropping the 1099-K requirements for 2022 from $20,000 (and 200 transactions) to $600 from any one platform. However, the IRS delayed the $600 rule in December 2022 and announced that the previous rules will apply for 2022 returns.
Who Sends the 1099-K?
Payment platforms would send the 1099-K form to business owners or independent contractors who use their software. Only business owners and independent contractors receive a 1099-K, and they can typically expect them to arrive by the end of January.
Something to keep in mind is that booth renters or other independent contractors may receive more than one 1099-K if they meet the earnings threshold using more than one app. An example of this could be a hair stylist accepting payment using a processor such as Square, and then collecting tips with an app like Venmo.
We suggest keeping this simple by using the one platform exclusively for your payment processing and tips. One & done makes things easier for everyone.
What Information is in the 1099-K?
In addition to your taxpayer identification number and Social Security Number, the 1099-K contains the dollar amount you processed in sales for the year, broken up monthly.
To ensure that this information is 100% accurate, it’s wise to keep books and records throughout the year. Management software should make important sales data available via a Reports feature. Integration options with accounting software like Xero and QuickBooks can simplify bookkeeping further by enabling businesses to sync sales transactions, taxes, refunds, tips & other data for a real-time view of their cashflow.
Adjustments & Deductions
A 1099-K reflects the gross amounts paid for services, meaning it doesn’t include cash transactions, like tips, or other things, such as refunds. You’ll need to add or adjust for these.
You’ll also need to deduct any other potential business expenses you may have. These adjustments help lower your tax bill, and can include the following:
- Travel-based expenses
- Supplies, such as shears or backbar products
- Furniture
- Licensing renewals costs
- Retail products
- Internet & phone bills
- Home office expenses
A good strategy for keeping all this information organized is to create a monthly profit and loss (P&L) spreadsheet. Sometimes called an income statement or earnings statement, a P&L spreadsheet deducts your business’s expenses from its sales to determine your overall profit or loss.
Per the IRS, 2022 will be the final year that businesses can write off 100% of the cost of expenses. After that, only 80% can be deducted from your taxes. Always consult your accountant or tax advisor about your personal tax situation, as Vagaro cannot provide tax advice.
Deducting Fees
The 1099-K doesn’t include credit card processing fees, either. Deducting these fees from your 1099-K ensures you only pay income tax on the money you made. What do we mean by this? Well, suppose we applied Vagaro’s credit card processing rate of 2.75% on a $60 haircut. A client may pay $61.65, but the real amount paid to you for the service, adjusted for fees, is $60.
Even if your state doesn’t allow charging credit card convenience fees to clients, they are still a deductible business expense. Vagaro users can find processing fees by logging into their accounts via their smartphone or desktop. From there, they’d click on the Reports tab, and select Deposit.
Generating the 1099-K in Vagaro
Vagaro Merchant Services generates 1099-K forms for all business types, and they are easily accessible on the web or via the Vagaro Pro App. Users need only to click on the link in their merchant account, choose 1099, and select the year they need. Once the year is chosen, a clear PDF version of the form is displayed in front of them.
Check out this helpful support article for detailed, step-by-step instructions on how to generate 1099-K tax forms in Vagaro.
Renters who pay over $600/year in rent will need to download another 1099 form, the 1099-MISC, to use when filing their tax returns. In conjunction with Vagaro’s Rent & Fees feature, tax forms are generated automatically with rent amounts & renter information, and are available for download.
Here’s another article that lays out how to access the 1099-MISC in Vagaro for booth renters.
Changing Information on Your 1099-K
If the information on your 1099-K is inaccurate (we all make mistakes) then you’d have to contact your payment processor to make changes. Vagaro users can edit a 1099-K from their most recent tax year by filling out a W9 form with their most up-to-date business information. This is the form used to correct a 1099-K. Once they send their W9 form back, Vagaro Merchant Services will follow up with them in 1–3 weeks.
Editing a 1099-K older than one year requires you to contact your tax professional for information on how to file those years.
Your holiday cheer doesn’t have to turn to tax-season dread if your business’s management software can handle the complexities of filing. Don’t go it alone—get Vagaro and start simplifying everything from taxes to taking appointments.
We'd love to hear from you!