What to Do With That 1099-K

Questions about Form 1099-K won’t go away. Indeed, even though I caution in numerous places on my website that I can’t personally provide specific tax advice by e-mail, I continue to get e-mails from people wondering what to do with the 1099-K they received.

Let me start by saying that I am no expert on Form 1099-K. I’ve posted about it a few times but am no expert. I don’t think anyone is an expert on Form 1099-K at this point. But here are my thoughts on what to do with the 1099-K you may have received

You Can’t Just Ignore It

Some of the people e-mailing me have said things like “I don’t have to report it because the 1099-K doesn’t have statutory force for 2011.” This is not really true. On business tax returns, such as Schedule C, it is true that you put $0 on the 1099-K line. But you are supposed to include amounts from the 1099-K with all other receipts on the “gross receipts” line. 

If you are a hobbyist, you are supposed to report your hobby income regardless of whether you receive a 1099 for it. This has always been the case.

So what do you do with that 1099-K? Here are some possibilities:

  • If it’s business income, you show ALL your gross receipts on the “other gross receipts” line.
  • If it’s hobby income, report all your hobby income on Line 21 of your 1040.
  • If it relates to things you’ve sold on e-bay or Craigslist, then some of the 1099-K numbers might relate to capital transactions on Schedule D, depending on the circumstances.
In other words, you don’t specifically attach the 1099-K to your tax return – but you can’t ignore the numbers shown on the 1099-K.

What Does the IRS Do With the 1099-K Info?

I don’t really know the answer to this. I think it’s probably another tool for them to try to catch people who aren’t reporting all of their income. For example, a Schedule C business owner who receives a 1099-K for $10,000 but only reports $5,000 of receipts would probably set off alarm bells with the IRS. As Joe Kristan at the Tax Update Blog says:

The real use of the 1099-Ks will be to identify people in the eBay/Amazon economy who aren’t reporting their income, though it will probably also help to smoke out, say, restaurant owners or gas station operators who are cooking their books. Even then it will be a crude tool to identify egregious violators — not a way to to tie out income precisely.

 

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”

6 Responses to “What to Do With That 1099-K”

  1. Lynda MARX February 24, 2012 at 1:09 pm #

    If I list 1099k income hobby can I list equal expensives as I also buy for my hobby and spend more than I sell ?

    • Jason Dinesen February 24, 2012 at 1:42 pm #

      Thanks for writing. I will address this question in general in an upcoming “Ask Jason” segment.

  2. William Martin April 5, 2012 at 5:58 pm #

    Received an 1099-k from PayPal showing gross amounts of items sold on eBay. All the items sold were from an inheritance from my father. Does this have to be reported on the IRS tax forms and which forms ? Again, all the proceeds are from an inheritance and monies received for the items are below their actual appraisal / valuation. Thank you.

    • Jason Dinesen April 5, 2012 at 6:23 pm #

      I would suggest paying an accountant to help with this. You’ll need to know your basis in the inherited items, and probably need to use Schedule D for the reporting.

      • William Martin April 5, 2012 at 6:25 pm #

        Thanks

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