Many taxpayers have questions about Form 1099-K as it is a relatively new information return used by the IRS. If you have questions about Form 1099-K, the following should provide some answers. If you need to know more and have further questions about Form 1099-K, consult a tax professional. You can also learn more online here – THE TAX EXPERTS.
FAQ #1: My business (or businesses) had multiple sources of income – how do the Form 1099-K requirements affect me?
If you have only one business or multiple businesses that produce one or more streams of income, you have the option of reporting this business income on more than one line of your tax return. You can also use multiple returns or multiple schedules.
For example:
*You use one credit card terminal to process transactions from a retail business.
*You use the same credit card terminal to process the receipt of rental income.
You receive one Form 1099-K that reflects gross payment card receipts for both businesses.
FAQ 1a: How Is This Income Reported?
*You should report the income from the retail business on Schedule C.
*You should report the rental income on Schedule E.
FAQ #2: What if I run a business that receives income, but I’ve received a Form 1099-K in my name?
If you operate a business and typically use Form 1120, 1120S, or 1065 to report business income but receive a Form 1099-K for certain business income in your name, with your social security number, you will need to contact the payment settlement entity (PSE) listed on the Form 1099-K. Make sure that you request a corrected Form 1099-K that shows your business’s taxpayer identification number (TIN).
It’s also a good idea to ask the PSE to use the business’s TIN on all Forms 1099-K in future tax years. Copy and keep any correspondence with the PSE so you can prove to the IRS that you tried to correct this mistake.
FAQ #3: What if the total gross payment amount that appears on Form 1099-K is inaccurate?
If the total gross payment amount on any Form 1099-K does not correctly represent the actual amount of income that you received, you will need to determine the source of the incorrect amount of gross payments shown on the Form. This may be difficult since you may not know where to start. A tax professional may provide valuable assistance in this situation.
Some other similar errors that you may find on a Form 1099-K:
- The Form 1099-K is not yours
- The Taxpayer Identification Number (TIN) listed is incorrect
- The gross amount of income from all payment card and third-party network transactions is incorrect
- The number of payment transactions is incorrect
- The Merchant Category Code (MCC) does not correctly describe your business
FAQ #4: I changed the structure of my business entity in 2022, how do the Form 1099-K requirements affect me?
A change in the structure of your business in 2022 may also affect the accuracy of a Form 1099-K. If you incorporated, converted from a partnership (Form 1065) to a sole proprietorship (Schedule C), or vice versa, and you continued using the same card terminal for payment card transactions, you may see discrepancies in the amount of income reported on the form. In this case, the amount shown on Form 1099-K may not correspond with the tax return of the new business structure.
FAQ #5: I sold my business in 2022/I bought a business in 2022, how do the Form 1099-K requirements affect me?
If you bought or sold a business in 2022, your Form 1099-K may include payments for transactions made before the purchase or after the sale. Failing to update the business name and TIN but continuing to use the same credit card terminal may cause this problem to arise.
FAQ #6: I shared my credit card terminal with another entity, how do the Form 1099-K requirements affect me?
Sharing your credit card terminal with another person or business entity will cause your Form 1099-K to include the income generated by their transactions. Make sure you meet any requirements and file the appropriate form information return for each entity that shared your payment card terminal.
FAQ #7: I allowed my customers to receive cash back when they use their debit cards for purchases, how do the Form 1099-K requirements affect me?
If your customers were given the option of receiving cash back when making a transaction with a debit card, your Form 1099-K’s gross amount will reflect these cash back amounts. Thus, it is crucial to maintain records of any transaction that included cash back.
FAQ #8: What’s Next? Talk to a Qualified Tax Professional!
Many of the issues discussed above include contacting the payment settlement entity that issued the incorrect Form 1099-K. Solving these issues also demands that you keep complete and accurate records of all transactions. For example, you should
- Timely notify your merchant acquirer of any change to the name and tax identification number of your business.
- Maintain documentation to support the correct income and deductions for all your business entities.
- Retain records of payments issued to each person or business for a particular payment card transaction terminal.
- Keep copies of written agreements with any business that shares a payment terminal and canceled checks.
- Retain any correspondence with a PSE when trying to resolve any issue.
Our law firm can help you resolve any problems with Form 1099-K. We can help ensure that any Forms 1099-K issued by a PSE in the future correctly reflect your current tax situation. We can help you plan now so you can save on your business taxes in 2023!
If you live in New York or the Tri-State area and have any questions about any tax-related issue, call 212-490-0704 today for a FREE consultation. You can also learn more online here – THE TAX EXPERTS.
