1099-K reporting: the common issues and solutions
Form 1099-K, Payment Card and Third Party Network Transactions, is not a new form, but last year, the threshold for issuing the form was reduced from $20,000 in transactions (and more than 200 transactions) to $600. This means more of your clients will likely receive them for transactions with third-party payment processors like PayPal, Venmo, Ebay, Vrbo and many others.
Below, you’ll find a few of the top questions from a recent webinar on this topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: What would you do about someone who collects money from a bunch of people for an office dinner?
A: The best thing to do is to report the income on Schedule 1 (Form 1040), Line 8z, Other income, and then subtract it as an adjustment to income on Schedule 1 (Form 1040), Line 24z, Other adjustments.
Q: What if an independent contractor receives a Form 1099-K and a Form 1099-NEC, Nonemployee Compensation, for the same income?
A: Enter all the documents for IRS-matching purposes, then subtract the duplications on a separate income line or as an “other expense” in the deductions section of Schedule C.
Q: If the taxpayer has a Schedule C business, and the Form 1099-K is issued in the name of the taxpayer (not the EIN of the Schedule C business), what is the best way to show this on the Schedule C?
A: Report the Form 1099-K on Schedule C (Form 1040) business as normal. The Schedule C business is considered a disregarded entity that is directly connected with the taxpayer’s SSN.
Q: Will clients need to have receipts for the items they sell personally?
A: Not necessarily, but make sure the amounts they do provide seem realistic. If something should appear unbelievable, question it just as part of your general diligence when preparing a tax return.
To learn more about how to report Form 1099-K, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to join our completely free 30-day trial, visit natptax.com/explore.