It is almost tax filing season again and soon you will receive various third-party documents to assist you in preparing your taxes. One of the forms you will receive is a 1099-K from your credit card payment processing company.
These forms will show your company’s gross credit card transaction volume. For restaurants, this will include the cost of the meal, tax and tip. The 1099-K shows a monthly breakdown of these charges and should be compared to your monthly merchant statements to verify accuracy. The 1099-K is a fairly new reporting requirement, but the IRS has already implemented audit techniques and strategies to verify that are you correctly reporting gross receipts from credit card payments.
Another check the IRS performs is to verify the ratio of credit card payments to cash payments to see if they are within an expected range. This expected ratio is based on your Merchant Category Code (MCC) assigned by your credit card processing company. It is important that this MCC code is correct because each industry has a different expected credit-to-cash ratio as determined by the IRS.
The IRS will continue to use your 1099-K form to pinpoint potential underreporting of income, so it is best to be prepared just like you are for the lunch rush.