I can't tell you how often I hear my "older-school" counterparts tell me that their clients aren't using the Internet ... in any way. This includes portals, social media and, specifically, e-commerce (i.e., eBay and other online sales platforms). But I'm here to tell you this misconception is going to cause many professionals some serious issues once all the 1099-Ks start showing up.
I'm guessing many are asking right about now, "What is a 1099-K?" Not to beat a dead horse, but it's a form that may just cause its fair share of headaches if you have no idea what to do with it.
To help out, here's the background: Buried in the Housing Assistance Tax Act of 2008 is a law that requires companies that process credit cards to issue a 1099-K to each business that receives funds from those transactions. For example, if a client sells products on eBay, they will receive a 1099-K. The law also stipulates that anyone who sells on a site like eBay or Amazon will receive a 1099-K if gross sales are greater than $20,000 or there are more than 200 transactions. For the record, this also includes those with PayPal accounts. You better believe that more of your clients are selling on these Internet sites than you think.
Electronic commerce, also known as e-commerce, refers to the buying and selling of products or services over online systems. However, the term may refer to more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage - and that includes your clients. Knowing this, the time has come for accountants to get in the e-commerce game. To be clear, I'm not advocating that accountants start selling via the Internet, but simply educate themselves on the process - before getting bombarded with 1099-Ks this season.
Here's the other issue: Clients will also be confused by Form 1099-K. I suspect many clients will come to us dumbfounded - having no clue what the form is or its impact on their tax situation. Most will claim to have "sold some stuff online," but beyond that will not understand how to report their income. This leaves the accounting professional with a few choices:
1. Report the income that was stated on the Form 1099-K.
2. Try to help the client figure out what was sold and the related fees.
3. Take a new and innovative approach and get clients connected to the proper cloud-based accounting system to make easy work of figuring out e-commerce income.
I advocate the third option.
Using an innovative cloud solution makes it easy for clients to get up and running, and easy work of summarizing data and creating reports for net income and related Web site sales fees. Summarizing data can be done within a few minutes to create a profit and loss statement from multiple accounts. The functionality enables clients to match up their 1099-K monthly totals line by line to verify numbers and review the transactions behind those totals. How cool is that?
Okay, now to field the inevitable question: "How do I charge for this?" I can even hear the concerns: "Option Three allows clients to do the work themselves ... rendering my firm no longer needed." (Insert sad face.) Allow me to allay these fears immediately. Giving your clients an easier way to do business is helpful (and isn't that what you want to be to your clients - helpful?), but it does not render you irrelevant! Remember, you are still the accounting expert. Your clients do not have your years of tax and accounting expertise. Whether they can run reports themselves or not, they still need your seasoned guidance. Also, think of the added benefits of getting your clients on a Software-as-a-Service-based accounting system:
You create a space where both you and your client can monitor business activity in real-time.
That ability to monitor activity in real-time sets you up to sell additional quarterly tax consulting services, or maybe help them with a new entity selection.
There may also be hidden sales tax issues that need to be addressed, and depending on the size of the 1099-K, maybe some amended tax returns.
Also, think about how you could help clients with other business decisions. After all, you are their most trusted advisor.
E-commerce represents a whole new space for doing business, and we should be migrating to that space and taking advantage of the added business it brings into our firms. We should embrace this opportunity to be a part of the e-commerce movement. Remember, the term e-commerce refers to more than just buying and selling products online - it also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. Imagine being able to tell your clients that you are an e-commerce expert!
The government has given us the perfect opportunity to build our firms out into a new, hip niche. Tomorrow's accountant needs to migrate to online as a platform for developing the next generation of clients. I'm so excited about the opportunity. Are you?
Jody L. Padar, CPA, MST, is an adjunct professor at Oakton Community College, where she teaches taxation and QuickBooks courses. She is part of the Intuit Trainer Writer Network and speaks nationally on various technologies and taxation.
