Form 1099-K for a restaurant

[pkcpa]

The credit card processing company includes tips and sales tax in the 1099-K box 1a amount.

If the sales reported on the 1120S is less than the 1099-K amount will this generate an IRS inquiry?

I believe that some preparers gross up the sales (and cost of sales) by the tip and sales tax amounts

but I hesitate to do this.

Thanks for your advice! 

[IRonMaN]

If there is a significant difference, I would add the tips to sales and show an expense for the tips paid. If the difference is minor, I would just proceed onward and not worry about grossing them up.

[dkh]

You're worried total sales are less than the 1099-K.......So this restaurant only accepts Debit/Credit cards - never has sales paid by cash or check ?? 

[rbynaker]

When they first came out with the 1099-K there was a reconciliation that was supposed to be done (on the tax return) but nobody liked it so they scrapped it in favor of just sending notices.  <shrug>  Not quite sure why, they could have simply made the instructions "complete this section if your 1099-K amount is greater than your gross sales".  But they don't ask me.

I'm personally averse to tinkering with the accounting in order to fool the IRS computer into ignorance.  But I'm in VA where the gross receipts number gets reported to the locality for cross-reference with the city/county business license tax.  So reporting income that's not really income might get you a letter from the city/county government, pick your poison.

How hard would it be to do a 1099-K reconciliation?  Then attach it as a statement.  It's not likely to get read by anyone but at least it makes for an easy response to the impending IRS inquiry.  "As shown on the attachment: 1099-K amount - tips - sales tax = x + cash sales = 1120S line 1."

I've heard other people put them in as Returns and Allowances so maybe that's an option to consider.

Rick

[pkcpa]

Yes, cash sales are recorded but they are not enough to compensate for the sales tax and tips.

With covid in 2022 online sales with credit cards for delivery or pick up increased. 

Thanks

[Mike2959]

No. Here’s the issue with 1099-K for a restaurant. 
it’s a Gross number. Meaning the 1.45m 1099 I just got has 78K in sales taxes in that number. Has over 200K in server tips in that number. 
has 15K in gift cards in that number. 
Anything rang on a customer card is in the number. Tips and taxes. Now before you tell me that gift cards are liability on the balance sheet, not counted until redeemed yes I know, and we pay our tips out daily anyways….relax. 
the original question was what if I report less that the 1099K and you said don’t you have any cash sales. Yes. I do. But this why in restaurants ask this question. My number is 300K less then the 1099. 

[abctax55]

….relax. 

I'm very relaxed; you however, sound a bit stressed.

AND  -  You’ve come to an Intuit site supporting tax professionals, and you may be looking for support as an  DIY'taxpayer.

Please visit the TurboTax Help site for support.    I'm sure there are many threads over there on the issue.

Cheers!

[IRonMaN]

I read that and was thinking that it kind of reminded me of Belushi's famous speech -  "was it over when the Germans bombed Pearly Harbor?"  Good thing someone doesn't prepare tax returns for a living if they are that stressed out already 😯

[Mike2959]

Not trying to compare what is a ”tougher” business. Restaurants or preparing taxes. But the amount of tax preparers and even CPA’s that so many times make the mistake on a 1099-K for a restaurant is very common. Thinking the gross being reported is the “gross” plus cash sales is very common. It is incorrect. Very “incorrect”. Seems I stuck a few nerves with the level 15 team. Lol. 

[IRonMaN]

"Seems I stuck a few nerves with the level 15 team"

Seems that you would be wrong if you believe that.

[BobKamman]

You "stuck" the grammar team with "the amount ... is very common."

[qbteachmt]

"with the level 15 team. Lol."

Team? I never got the jersey, then. Are you using ProSeries for your clients' tax returns? Did you know this is peer users volunteering to help with software issues, and not Intuit customer support and not tax Q&A...

You seem to be lost on the internet.

You’ve come to a Peer User community for Intuit Income Tax Preparation products supporting tax preparation professionals using ProSeries, Proconnect and Lacerte Tax Preparation programs, and you may be looking for support as an individual taxpayer using TurboTax. Please visit the TurboTax Help site for support.

And try this screen, for the various topics (subforums): https://ttlc.intuit.com/community/discussions/discussion/03/302

Your sign in user info here is the same one you can use over at the TurboTax forum.

Thanks.