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.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.