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Reporting Credit Card and Merchant Payments on your Income Tax Return with Microsoft Dynamics AX

Starting Jan 1st, 2012 businesses now need to report Merchant Card and Third-Party Payments on a separate line. Effectively the gross receipts or gross sales on the Form 1120 (Corporate Income Tax Return) is now two lines

1a – Sales where payments are received from Merchant Card and Third Party Payments

1b. Gross Receipts or Sales not reported on line 1a

Form 1120 (Corporate Income Tax Return)

This is a simple requirement but can be nightmarish to get if your business is not setup to collect and report on this information separately from total sales. Microsoft Dynamics AX enables your business to effectively collect and report this information.

Essentially you would do this by setting up the Payment Methods correctly – typically you want to setup a different payment method for Credit Card, Gift Card, Check, Financing, Cash etc. You may have more than this of course.

Each payment method is then mapped to a GL account. By using a separate GL account for Credit Card and other Merchant card payments e.g. Gift card – you can review the transactions on that GL and easily meet the new income tax reporting requirements.

For example, the screens below show that the Credit Card Payments (method of payment CRED) are posting to a GL Account Credit Card Receivable while the Check Payments are posting to the Bank Sub-ledge account (as opposed to a GL account) USA operating Account.

Credit Card Method of Payment in Dynamics AX mapped to a GL Account allows you to track Merchant Card payments separately and comply with the new Corporate Income Tax Reporting format

Credit Card Method of Payment in Dynamics AX mapped to a GL Account allows you to track Merchant Card payments separately and comply with the new Corporate Income Tax Reporting format

Check Payment Method in Dynamics AX mapped to Bank account

Check Payment Method in Dynamics AX mapped to Bank account

While you can get the information from this GL, there are also several reports in Dynamics AX that can help get you this information. In the Accounts Receivable area in Dynamics AX you can also run the Customer Posted Payment Journal (AR > Reports > Transactions > Payments > Customer Posted Payment Journal). You can filter this report to only show lines that have come in through Merchant Card payments. For example, the screen shot below shows the report filtered to show transactions where the Method of payment is Credit Card (CRED in this example).

Customer Posted Payment Journal Report in Dynamics AX allows you to see all posted customer payments. By filtering to the relevant payment method e.g. Credit Card you can get details of the payment method

Customer Posted Payment Journal Report in Dynamics AX allows you to see all posted customer payments. By filtering to the relevant payment method e.g. Credit Card you can get details of the payment method

In this example, the report shows that I have received $65,000 through credit card payments via two transactions.

Payments received by Credit Card in the Customer Posted Payment Journal Report in Dynamics AX

Payments received by Credit Card in the Customer Posted Payment Journal Report in Dynamics AX

With this approach you can ensure you get the information you need to report effectively on your 1120 Corporate Income Tax Return This blog article is not meant to be tax advice. Please consult with your CPA / Tax Advisor for any tax advice.

Sandeep Walia is CEO of Ignify. Ignify is a leading provider of Microsoft Dynamics ERP solutions to mid-market and Enterprise businesses. Ignify has been ranked as Microsoft Partner of the Year Winner in 2011 and 2010 and in the Microsoft Dynamics Inner Circle, Microsoft Dynamics Presidents Club in 2009. Ignify has offices and team members in Southern California, Northern California, Arizona, Tennessee, Illinois, Washington, Canada, Singapore, Malaysia, India, Philippines.

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