What are the tax implications if I share single credit card processor between my two sole proprietorships?

Question

Can someone who has 2 sole proprietorships share a single credit card processing device to save on processing fees? What would be proper way to file taxes in such case?

Basically, my concern is that there would be single 1099-k form coming from the credit card processing company and the number reported on it would not have exact match on either of the two Schedule C individually (aggregate would be fine though). If this is something permissible, then what is correct way to do that:

1. Should one not use DBA name (or EIN) with credit card processing company so it would not map to particular Schedule C?
2. Should one sole proprietorship issue 1099-MISC form to other sole proprietorship to split the income reported on 1099-k?
3. Should owner keep some records on which transactions should be reported on the first Schedule C and which on the second Schedule C in case of IRS audit?

Answer 1

Other than having two schedule C's your tax situation is no different than if you had one sole proprietorship. You file one Schedule SE that combines the income from all Schedule C's and you report combined profit/loss on your 1040.

How it gets reported/divided across Schedule C's is not something I am incredibly confident of but I have seen similar situations with 1099's issued to one spouse instead of a joint business. My understanding is that in general you should match any received forms to the appropriate SSN/EIN. So, if the 1099-K was issued to a specific EIN then it should be reflected on the Schedule C for the business with that EIN, and you'd account for the portion that belongs to the other company by entering an item in Part V, Other Expenses.

The other expense entry would be something like:

Income assigned to Nominee - OtherBusinessName - OtherBusinessEIN

Then you record that amount as revenue to your other Schedule C and you've got the 1099-K properly matched to the right Schedule C and you've accounted for the revenue that doesn't apply to that company.

If the 1099-K is issued to your SSN and your businesses have EIN's then the cleanest approach might be a third Schedule C with multiple income assignments.

Hopefully others weigh in if anything I've stated is flawed. If you haven't yet set up your businesses there are a number of good articles on how to organize multiple businesses under one parent/holding company that should help. Also, as others mentioned, understand the terms of your merchant agreement(s) to see if this is even permissible.

Answer 2

First and foremost, I would STRONGLY suggest that you choose something other than sole proprietorship for your businesses unless you have compelling reasons not to do so (nothing comes to mind immediately, so I'm at a bit of a loss there).

Second, whether you can process cards from more than one business through the same merchant account is questionable, depending on the nature of each business. For instance, when you applied for a merchant account, you had to specify the nature of your business, as well as the type and average amount of card transactions you anticipate running. The processor then makes their determination based on that information. So if the second business you have is radically different (say, maybe you opened the account for your bicycle business and now have a new internet-based venture of some kind) then it changes the risk model (and very frequently the rate you pay) for card processing services.

As noted by another comment, your merchant agreement might preclude you from using your account for any business other than the one you originally signed up for, so you may have to sign up for a separate merchant account for the new business. That will be the most significant issue at the moment.

As for the tax implications, your question makes the case why you might want to create legally separate entities so that you can file taxes for each one and keep your personal taxes cleaner.