Today TaxMama® hears from Stephanie in the Tax Quips Forum with a very valid concern. “I’m concerned about this requirement that PayPal report my sales numbers via the 1099-K. The clients I work with will also have to send me a 1099-MISC. Won’t that be income that is double reported? Usually I just enter my total income and ignore any 1099’s I receive since I keep track on my own and claim every last penny I earn. I am Not sure how this is going to work with this new requirement.”
You are right to be concerned. The new system could very result in double reporting, until people get their accounting systems up to date to separate payments they made via PayPal and credit cards from payments made by check.
There is an easy way around this – and I will show you what to do in a moment. First of all, I applaud you for keeping excellent books. But I must caution you never to ignore the 1099s you receive.
They may be wrong. Or they may report more income than you have received due to timing differences. For instance, a 1099-MISC might include a payment they made on December 31st, that you didn’t receive until the next year. It would be correct from their perspective – but it would too much from your perspective. You must always report ALL the 1099 income you receive, even when it’s too high – to match the number in the IRS computer.
Here’s how – in three easy steps:
1) On the new line for 1099-K income, report all the 1099-Ks you receive.
2) On the line for other income report two sets of numbers:
a) All the income from all the 1099-MISCs you receive.
b) All the other income shown on your tax return, that is higher than all the 1099s you’ve gotten.
3) What’s if the total of the 1099s are too high? Easy. Report the excess income on one of the blank lines on page 2 of your Schedule C (or among the Other Expenses on your corporate or partnership return). Call it “Duplicate 1099 Income.”
That’s it. That way, you report all the 1099s. But you deduct the excess among the expenses. You avoid audit – and you don’t over-report your income.
And remember, you can find answers to all kinds of questions about 1099 income and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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