1099-K reporting

Technical topics regarding tax preparation.
#1
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In anticipation of seeing more 1099-Ks issued to my clients this tax season, I am trying to think my way through the best way to report certain scenarios. I have an idea and I wanted to see if I am wrong or if anyone had a better idea.

Let's say a taxpayer sold his coffee table for $1,000 on eBay (His only transaction of this type!). He originally paid $1,500 for it. He has a non-deductible $500 loss on sale of personal use asset. Because PayPal is the third party payment network and the sales proceeds are >$600, the taxpayer is issued a 1099-K for this transaction.

I would report in my tax software (CCH) the 1099-K amount ($1,000) and then separately report -$1,000 to back out the 1099-K amount with a description such as "payment reported on form 8949". So the net amount from the 1099K flowing to other income is $0. I would then report the sale of personal use asset on form 8949 with an adjustment on the loss for 'personal or other non-deductible loss". So no capital loss is picked up.

Is this correct? Is there an easier (perhaps better?) way to report this. Thanks for your time.
 

#2
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2021 Drake has a 1099-K but only for States. IRS says(below) its business income. So if at the moment if I were to do anything with a 1099-K might add a Schedule C and then zero out with an expense with explanation.

IRS: What should I do with this information?
It is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive. In most cases, your business income will be in the form of cash, checks, and debit/credit card payments. Business income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.
 

#3
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I believe you'd use code "L" and an adjustment to zero out the nondeductible personal loss on the 8949.

I have a feeling that eventually there'll be an option to direct the 1099-K input in tax software to Form 8949, due to the Ebay et al dynamic. If that happens the 1099-K will be in the transmittal schema and we won't have to do the in-and-out on Sch C or Sch 1 to avoid matching errors. May or may not be available for 2022.
 

#4
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One of the tangential issues that has me a bit concerned is sales tax liability and penalties that could arise.

If we report the 1099-K transactions as revenue on Schedule C, will the resident state be cross checking to see if sales tax has been collected, reported and paid? Some states such as NY have substantial penalties for failure to register. I'd have to look again but I think you can incur a $10,000 penalty in less than 2 months for failure to register with sales tax.
 

#5
CathysTaxes  
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Taxalmancer wrote:One of the tangential issues that has me a bit concerned is sales tax liability and penalties that could arise.

If we report the 1099-K transactions as revenue on Schedule C, will the resident state be cross checking to see if sales tax has been collected, reported and paid? Some states such as NY have substantial penalties for failure to register. I'd have to look again but I think you can incur a $10,000 penalty in less than 2 months for failure to register with sales tax.

I think your concern is why Drake has a requirement to report the 1099K on the state returns.
Cathy
CathysTaxes
 

#6
Nilodop  
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IRS says(below) its business income.. That's not what they say, and it's not business income.

One of the tangential issues that has me a bit concerned is sales tax liability and penalties that could arise.
. Don't many (or even most) states have a sales tax exemption for casual sales?
 

#7
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Nilodop wrote:Don't many (or even most) states have a sales tax exemption for casual sales?


I think that is correct. NY has an casual-sales exemption of $600 (coincidentally). Above that they are taxable and filed on a specific form.
 

#8
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Some states have a gross receipts tax. Another reason not to report non-business 1099-K income on Sch C.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#9
MilesR  
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I have a 1099-K scenario that I was just asked about by a client:
Father helps daughter setup one of these online crowd funding sites to collect "donations" for her cheer leading team to do a show. Money goes to father's bank account and then he gives it to the cheer team. There's no booster club or anything setup for this and no 501(c)(3). The donations are therefore not deductible, but my concern is how to report this... The father is going to get a 1099-K for collecting the money for them. Any idea how to report this 1099-k so he doesn't have to include this in taxable income?

Would you consider it gifts and report on sch 1 and then back out on sch 1 as "crowd funding 1099-k gifts" or something?
 

#10
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Anyone who has not signed up for Tax Speaker's weekly newsletter, should consider doing so. He discussed his very topic this week.

I (ahem) suggest putting the 1099-K on Schedule 1 - line 8z for the income and 24z to back it out.
 

#11
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IRS 12-2-22

The Internal Revenue Service reminds taxpayers earning income from selling goods and/or providing services that in early 2023 they may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year.

There is no change to the taxability of income; the only change is to the reporting rules for Form 1099-K. As before, income, including from part-time work, side jobs or the sale of goods, is still taxable. Taxpayers must report all income on their tax return unless it is excluded by law, whether they receive a Form 1099-NEC, Nonemployee Compensation; Form 1099-K; or any other information return.

The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. If a Form 1099-K is incorrect and reflects income they didn�t earn, they should call the issuer. The IRS cannot correct it. Visit frequently asked questions on IRS.gov for more information.
 

#12
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TAXMASTER wrote:IRS 12-2-22

The IRS emphasizes that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. If a Form 1099-K is incorrect and reflects income they didn't earn, they should call the issuer. The IRS cannot correct it. Visit frequently asked questions on IRS.gov for more information.


The problem is do you really think all these issuers are going to listen to the taxpayers when they ask them to reissue? What's the recourse on the issuers when people call and tell them that their business 1099-K was personal and they amend it and then the taxpayer avoids the income again. I believe at the end of the day that its going to be up to us to report it somehow on the return to avoid CP2000 notices and move forward. I'm not waiting until the summer to file returns that are waiting for amended 1099-K's that may never come.
 

#13
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I see this a bit differently. The TP is not in business. There is no income and no duty to report any part of the sale to the IRS or a state. There is only a 1099-K that may cause a letter to be sent. If that's a concern, then report it on an 8949 and move on.

The last post is a different fact pattern. The TP is a mere conduit. Again, there is no income and no duty to report.
Steve
 

#14
CathysTaxes  
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The TP may not be in business but they may have hobby income. Just report it and back it out in the appropriate area. You will not get a corrected 1099K. The client will pull a passive aggressive whoa is me to get you to make the call until you tell them that's an extra fee.
Cathy
CathysTaxes
 

#15
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This is analogous to a garage sale.
Steve
 

#16
Nilodop  
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Let's go back to OP's sale of a coffee table at a loss, not in a trade or business. The loss is not deductible. The receipt of a 1099K for the $1500 sale price is not an error; it's required. The 12/2/22 IRS Information Release (2022-189) does not address this situation at all.

The "(ahem)" suggestion above by SumwunLost seems like an easy way to deal with it and is a partial quote from this Tax Speaker item.
I do not like using Schedule C because of potential state licensing and sales tax issues, although it would at least avoid IRS letters if you net it out to zero. I lean to Schedule 1 Line 8z for cash in and then deduct the same amount on line 24z for cash transfers, and Schedule D for personal property sales, but make sure not to deduct a loss on personal items.
.
 

#17
TheGrog  
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The problem isn't that it is a garage sale, the problem is that the IRS will assume it is taxable income unless you report it somewhere on the return. I suspect they may assume it is SE income too, but I don't remember the last time we were in this situation so I don't remember the default treatment. 8949 is probably best, IMO, but I never considered putting it on Sch 1 before.

I think the chances of getting the K amended to 0 is pretty low.
 

#18
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Regarding taxpayers receiving 1099-Ks that shouldn't have been issued, I don't think is going to be a material issue or concern.

Misclassifications currently skew to the other side of the fence. e.g. Contractors using personal venmo and cash app accounts, and requesting customers classify transfers as a gift or friends/family payment rather than a payment for services. That's another issue, but I doubt people are going to be getting 1099-Ks for receiving gifts or reimbursement from friends and family.

For those getting 1099-Ks from ebay I agree those should be issued, we'll just report it on the 8949 with the appropriate gain or nondeductible loss.

It's not a problem until it's a problem.
 

#19
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Does the draft 2022 1040 contain new 1099-K instructions?

IRS FAQ added 10-21-22

Q. How do I report 1099-K on my tax return.

A. Information on your Form 1099-K may be used to compute your gross receipts or sales. You should follow the return instructions on the form you are completing to report your gross receipts or sales.
 

#20
Joan TB  
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See IRS Fact Sheet 2022-41 for how to report.
 


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