1099-NEC, 1099-K Duplicated Income

[LYNDAJZ6]

How handle on a Schedule C if you receive a 1099-NEC and that same income is reported as part of 1099-K?

For example, receive a 1099-NEC for $1,000.

Receive a 1099-K for $50,000.

$1,000 of that $50,000 is the amount reported on the 1099-NEC.

Thanks!

[Jim-from-Ohio]

• show total revenue of 51,000
• deduct under other expenses 1,000, label something like "1099 NEC INCOME ALREADY INCLUDED IN TOTAL REVENUE ABOVE"

[qbteachmt]

It's not Duplicated Income.

Let's review the basics:

1099 forms are Informational.

1099-K is Money Flowing. There is a requirement for a Payment Settlement Entity (PayPal, eBay) to report the person had a level of activity that necessitates a 1099-K. This happens, for instance, if you sell your own Engagement ring and are paid by PayPal.

1099-NEC is a customer reporting that they paid someone, in the course of business, an amount that meets the reporting requirement. To be able to take it as business expense, they reported it to the IRS, and the IRS expects that person on the 1099-NEC to be reporting their income. Not this Amount.

A customer who pays through any PSE or by Credit Card doesn't also need to issue a 1099-NEC, but they don't all know this. That 1099-NEC could be from a different client, as well. The reporting could have been because your client got paid by Cash, for instance. And, even if no one pays your client $600 or more (so there is never a 1099-NEC issued), your Client still is supposed to report all of their business income.

So, the $50k is money Moving.

Your client should be giving you their business financial info for the Sched C.

These are not the same thing.

[dkh]

I agree with qbteachmt....  1099s and 1099Ks aren't necessarily indicative of total income.  Could a client only be paid through a Payment Settlement Entity - possible but probably not likely.      

[gabletax]

Everyone that thinks the IRS cross-checking system won't raise a red flag if NEC's plus K's add up to more than gross receipts reported on the tax return, raise your hand, please.

I'm with Jim. If it adds up to more than actual gross receipts, prevent a headache for your client and you, and do the IRS a favor, by somehow reconciling this on the tax return to prevent red flags.

[dkh]

I'm saying those gross receipts had better be at least as much as 1099K and 1099NEC but most likely are MORE.    Too many taxpayers think....gee I don't have report xx amount of income because I didn't get a 1099....

[qbteachmt]

"Everyone that thinks the IRS cross-checking system won't raise a red flag if NEC's plus K's add up to more than gross receipts reported on the tax return, raise your hand, please."

🖐

What you don't take into consideration:

Who ever said there was reconciliation to 1099-NEC?

Who ever said 1099-K related only to business?

"Could a client only be paid through a Payment Settlement Entity"

Sure. Just like a client can gross $3 million and never receive either form. The business still reports the business info. A tax preparer needs to know not to rely on Forms as if that is all that is exposed.

I use the word "discoverable" in my class, as in, "If you have any footprint for business purposes, including spending money, getting money, have a cell phone, have a life, you can bet that if you and I were to go over your info, the IRS can go over it, too."

"If it adds up to more than actual gross receipts"

You don't even need to add it together; you need to be prepared with your substantiation or supporting documents. All those people being reimbursed by Venmo for entertainment shares from their friends simply need to be able to prove that's all it was, and it wasn't business.

[PATAX]

@dkh I agree with dkh. You should pick up ALL of the gross income, regardless of what is reported via all  the 1099-k and any 1099-nec. The vast majority of small businesses have both cash receipts, and credit card or other card receipts that go through machines and on to 1099k. As we know cash receipts are not reported on 1099-k, therefore dkh is correct. Like QB as said before you pick up the ACTUAL total gross receipts. In my opinion the 1099-k form is used by the i r s to determine if total receipts are correct by comparing credit card receipts to cash receipts. For example if a business is a type of business in an  industry were 50% of the sales on average are credit card sales and 50% cash sales, then this is what the IRS may expect. For example if the 1099-k shows 1 million in sales, and the taxpayer only reports 1.2 million in total sales, and the ratio is 50/50, then the i r s may be looking for another 800 thousand in cash sales which would be 2 million total sales.. . A gentleman said years ago at a seminar that a client was audited because of  this ratio percentage technique, i.e. it was  not what the IRS expected for that industry based on credit card and cash percentages. Whether this is actually the case or not , I am not 100% sure, and this is just my opinion.

[qbteachmt]

Here's another example:

Sales tax is Liability, not Revenue, to a business. If you are running a food takeout operation (as was typical during the worst of the pandemic), you might get paid only by credit card, with tips and taxes. We had a business that worked twice a week out of a rented kitchen; they took orders up to 4pm the day before, for delivery the next day, and you paid by credit card on the web site.

That means everything they got will be on 1099-K. But at least 1/3 is tips and taxes, so the Gross Revenue and the 1099-K won't match. But the payroll and sales tax reporting supports the difference.

[PATAX]

@qbteachmt👍 excellent points their qb.

[HOGANTAXES]

How would you suggest those venmo people report it? offset it?  I know this year will be a mess with lots of individuals getting them for personal reasons only!

TIA

[qbteachmt]

The IRS is releasing a lot of great guidance for the personal reporting, but with the delays and changes in the 1099-K reporting requirement, it's been a moving target. Just keep reading the Tax Tips for latest recommendations, such as:

https://www.irs.gov/businesses/what-to-do-with-form-1099-k