1099-MISC & 1099-K Explained + Help with Double Reporting, PayPal, and Coinbase!


Manage episode 204383670 series 2286599
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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 and 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 the most appropriate for you, but I hope it's helpful because I've just spent a lot of time researching and learning these things myself. I hope I can just present that for you and make it a little easier. 1099-MISC & 1099-K Explained + Help with Double Reporting, PayPal, and Coinbase! First, what is the difference between a "1099-Miscellaneous" and a "1099-K"? A "1099-Miscellaneous," the form you see below, is intended for payments that are made essentially like cash or direct deposits into a bank account, not using a third party, and this is for independent contractors in the United States of America. 1099-MISC It is used if I pay you for something for my business directly with cash, a check, an 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, but 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. It depends on what it's for, but it could be box 2, box 3 or box 7. For example, Amazon reports it to me in royalties and most others report it in 7, 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, it is their responsibility to send us a "1099-K" form when we've received over $20,000 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. 1099-K 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 and you have over $20,000 in payments and over 200 transactions, you're very likely to get a "1099-K" form. This form provides 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 the process of doing now. 1099-Miscellaneous & 1099-K I enter the PayPal fees on Schedule C as 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 the purchaser or when we are paid with a credit card, we are not supposed to send a "1099-Miscellaneous" for that income. 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

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