Digital Sign 1099-MISC Form Made Easy

2013 1099 K Form

what is the difference between a 1099 miscellaneous and a 1099 K form for taxes in the United States of America as overseen by the Internal Revenue Service or IRS specifically for this what happens when our income gets double reported both on a 1099-misc and a 1099 K how do we handle that now I'm no CPA I've had my own business online for seven years I do my own taxes I research for myself what I'm presenting here is based on my research from several different conflicting points of view from Certified Public Accountants based on what I see makes the most sense this may or may not be most appropriate for you I hope it's helpful because I've just spent a lot of time researching and learning these things myself so I hope I can just present that for you and make it a little easier first what is the difference between a 1099 miscellaneous and a 1099 K a 1099 miscellaneous this form on the left here this is intended for payments that are made essentially like cash or direct deposits into a bank account with not using a third party so if you and this is for independent contractors in the United States of America that means if I pay you for something for my business directly with cash a check and ACH transfer straight to the bank a wire transfer or using PayPal specifically sending money to friends and family and let's say I paid you for a service or I paid you for advertising and you are reporting directly to the IRS as an individual and not a company there may be differences for companies there if I'm paying just one individual to another and I did not use a third party payment method or I sent a cash equivalent on PayPal or another method then it is appropriate for me if I've sent at least $600 in one tax year to use a 1099 miscellaneous form to report that income usually this is reported in it depends on where it's for but it could be box two box three or box seven and that's for example Amazon reports it to me in royalties and most others report it in seven non employee compensation this is not appropriate for someone who's actually hired as an employee this is for independent contractors now this form is for again not using a third-party network now if we've used a third-party network the third-party network it is their responsibility to send us a 1099 k form when we've received over twenty thousand dollars in payments and over 200 transactions the purpose of this 1099 k form is especially for online sellers like me using third-party networks so the IRS can easily track our income this means paypal sends me a 1099 k for the total of my transactions made through most but not all payment methods I also received one of these from stripe I also got one from coinbase which provides additional complication if you're driving for uber or working through some other services where you accept transactions directly on a credit card you very like and you have over twenty thousand in payments and over 200 transactions you're very likely to get a 1099 K form this form per divides the gross number that means the total it doesn't include things like fees it doesn't include things like refunds when we put these in we need to go in and enter all that stuff as expenses in Schedule C which is what I'm in a process of doing now meaning I enter the paypal fees on Schedule C is an expense I go in and enter the refunds as money given back in the income now where this gets confusing is checking exactly how we paid and clients that end up paying us or clients we have that we end up paying using a credit card because when we use a credit card to pay as a as the purchaser or when we are paid with a credit card we are not supposed to send a 1099 miscellaneous for that income also I just learned that this year and this is very helpful for me because now I know when I pay an independent contractor through a third-party network like PayPal or stripe I'm not responsible for reporting that income in terms of using a 1099 miscellaneous because that's on the payment processor to do that now well the problem I've encountered is that I've had at least one client sending thousands of dollars of payments that was not aware of this what happened the income has then been reported twice the income was reported within the 1099 K PayPal gave me I went in looked at the reconciliation report and I can see all the transactions that clients sent which the client also reported on a 1099 miscellaneous are all then reported to PayPal in the 1099 K also that means the income was reported twice to the IRS the same income was reported double now obviously I am not expected to pay tax twice on the exact same income the limitation is that the IRS has automated system set up that look for under reporting or not reporting income I've read some conflicting advice from Certified Public Accountants answering questions online about how to handle this here's how I'm choosing to handle it I'm choosing to handle it when a client has double reported the income a I tell the client to make sure it doesn't happen again next year and say look will you please not report this on a 1099 miscellaneous if you use a credit card to pay or use money send money to friends and family on PayPal that way it won't get included in the 1099 K then you can send it to 99 miscellaneous so a it's a to me to educate whoever's paying on this tax law and then be I need to handle it this year without preferably reducing the income because if I just start subtracting things from the 1099 K then it looks like I'm under reporting my income according to the automations the IRS has set up this is what I've read from one CPA and I read it from another seller on Amazon whose friend he said simply reduced his 1099 K income to cut out all of the Amazon fees and payments like that and then that triggered an audit we don't want to reduce the income reported that way the IRS can see we've reported all of the income we got and what we want to do and said at least based on what I've seen some suggestions I've seen a different suggestion as well we want to add that in as an expense put that in in the relevant place to then essentially deduct that double payment so what I've done for the client the client who also paid with the 1099 miscellaneous I've reported the income both times in there in other words I put the exact PayPal 1099 K income I put the exact 1099 miscellaneous income and then all I do in my expenses is I add in a line essentially an expense back to that client for the double payment because the client only actually paid me once and yet these same incomes reported twice therefore I put in an expense back to that client to cancel out the double income reporting then if there are questions it's easy for me to demonstrate Bamm in my 1099 K this incomes reported here and in my 1099 miscellaneous the client reported it there I was only actually paid once so this is an expense that cancels out the double payment which reflects the truth the truth of one single payment sent for this amount without reducing the income reported to the IRS that was one CPA suggest for how to handle it that's the one I agree with because after what I read and logical you don't want to reduce the income reported to the IRS you simply expense that back out now with paypal with some processors this might be fairly straightforward if you got a double payment you simply expense it out this gets more complicated using PayPal because PayPal does include some things on the 1099 K and does not include other things based on my calculations I am NOT asserting this is the absolute correct answer but when I calculate the mass payments the mass pay payment plus the website payments plus the Express Checkout payments the number is within 20 dollars or so of what K PayPal reported on the 1099 K and when I subtract out general payments and mobile payments from the total it appears at least cross-checking the general payments with the 1099 reconciliation report that PayPal is not including general payments or mobile payments in the 1099 k total these apparently are cash equivalents that means it's the same as if someone just made a check directly to my bank account or made a payment directly through some other service that doesn't count as a third-party reporting transaction just having direct deposits and a bank account does not trigger a 1099 K at least as far as I'm aware therefore when using PayPal we need to specify and help the people paying us provide the correct method using a website payment Express check out our mass payment results in it being added as a 1099 k if we have clients or we are paying people who are determined to use the 1099 miscellaneous system or who just want to be paid with cash equivalents instead of credit cards we can use a send money to friends or family or we can send mobile payments that said PayPal asks that when we pay for goods and services we do it through a payment for goods and serve because for PayPal's accounting and for putting it on the 1099 k it all does it automatically then however if you have a client you know is sending a 1099 miscellaneous who refuses not to or who demands that they have to because of their accounting using a general or mobile payment can get around paypal triggering a 1099 k if you think that's not complicated enough then we can get into the coinbase 1099 k reporting coinbase sent me a 1099 k for a hundred plus thousand dollars in 2017 which reflects the total amount of payments sent in to me now if that's that what am I supposed to do with that because some of those payments I literally sent say ten thousand dollars out to bit Rex traded some and then sent nine thousand back after having lost a thousand dollars and then on the 1099 K it just gets reported nine thousand dollars so it looks like I just got nine thousand dollars in the way I'm planning to handle this is to put it on cost of goods sold because the 1099 K in from coinbase reflects essentially sales that I've got in from somewhere else if it cost me ten thousand dollars to put it in there and then I get back nine thousand then the income is the nine thousand with the gross sales and it cost me cost of goods sold ten thousand dollars to get that nine thousand dollars back in now this may not be the absolute best way to do it either especially when it's capital gains so the income I'm not reporting any capital gains income over a year this year on coinbase now next year I will be reporting that where then I will want to separate that out and put that in as capital gains this theoretically could be done through cost of goods sold to I could simply put the total 1099 K in put all of the things that were cost of goods sold and then simply report that in as capital gains on a different section so it could theoretically all be done but PayPal's reported this straight to my business as has stripe and coinbase I believe is sent it directly through my business as well and because I've got a bunch of payments that are for my business directly in that 1099 k as well therefore it seems the easiest thing I can do is use cost of goods sold to simply cut out the things in the 1099 K that do not correctly apply to or to cut out the expenses I had relevant to generating that 299 K like I just said if I sent 10,000 out and got 9,000 back out of that 10,000 it cost me 10,000 to essentially generate that 9,000 in sales and then if I'm paying capital gains on it somewhere else I could put theoretically let's say send out 1,000 and then I got back 10,000 I could theoretically put 11,000 on the cost of goods sold on Schedule C for my business then I go in in my personal income under capital gains and I put in I put in the appropriate numbers in there which then would be the capital gains of $10,000 and then I pay tax on that capital gains instead of paying it as a part of my business income in that respect I've essentially canceled out all of the income relevant to my business with cost of goods sold and put that in directly to capital gains while getting that 1099 K form to my business what's challenging with the taxes is this is very much enough artwork we have a lot of choices as to how we can go about report things while the IRS provides clear guidelines in some places for a lot of things it's not precisely clear exactly what to do and different certified public accountants provide different answers and then the answers may vary by state as well depending on whether state taxes are involved or not and the IRS changes things from year to year to meaning one year it was appropriate to do it this way the next year you have to change it therefore with the taxes to me the key thing is to do our best in honestly reflecting our income to report our income and our profit especially for business in a way that's accurate in other words if we get audited and if we didn't put things in exactly the right spot but the numbers come out correctly then it's all good the place the IRS has a problem is when we've screwed around and underreported or failed to report our income or done our accounting in such a way as to artificially reduce our tax burden I do my best to pay what is right and that means sure now I want to pay the lowest tax possible and at the same time I want to pay an amount that I feel good about an amount that if there is an audit I feel good about that I say look I know I did this to the best of my ability I intended to pay every dollar of tax I was responsible for and I intended to do my best to minimize my responsibility just through however I set things up for example to make sure I include all my advertising expenses all some business owners are not aware of all the things I was not aware of some of the things you could deduct as an expense related to your business when I got started and the idea it and things using things like capital gains it's better to buy something and hold it for a year and sell it at the capital gains rate then it is to just buy it and trade it back and forth you have to sell it at full income using that as the strategy to reduce income is totally legal and therefore you want to do that whenever possible for crypto currencies for example better to buy and hold something for a year and then you can sell it at most likely a much lower tax rate that is reducing your tax burden and tax liability through smart planning therefore I try and use a combination of smart planning accurate accounting to report my income and also not to trigger any automated problems with the IRS and so I can sleep at night when I get a letter from the IRS with questions I got one letter because I had two businesses open and PayPal sent the income to one I put the income on another the IRS was confused I sent a letter back saying I already paid that on this other business they quickly verified that then I don't have to be afraid I know if if the IRS wants to see my full books here have everything there's nothing behind I hope this has been useful for you because I googled a bunch on this particular subject 1099 K 1099 miscellaneous double income reporting coinbase 1099 K I couldn't find a lot of good information about it I've produced this with the hope that this is good information and it's a helpful part of your research if you're doing your own taxes or trying to help someone else out with theirs thank you very much for watching I love you you are awesome I hope this video has been helpful and the accompanying blog post with it's been helpful as well test I'm good I'm glad my mic wasn't muted that would have been been awkward