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



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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

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

most appropriate for you I hope it's

helpful because I've just spent a lot of

time researching and learning these

things myself so I hope I can just

present that for you and make it a

little easier first what is the

difference between a 1099 miscellaneous

and a 1099 K a 1099 miscellaneous this

form on the left here this is intended

for payments that are made essentially

like cash or direct deposits into a bank

account with not using a third party so

if you and this is for independent

contractors in the United States of

America that means if I pay you for

something for my business directly with

cash a check and 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 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 usually this is reported in it

depends on where it's for but it could

be box two box three or box seven and

that's for example Amazon reports it to

me in royalties and most others report

it in seven 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 the third-party

network it is their responsibility to

send us a 1099 k form when we've

received over twenty thousand dollars 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 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 you very like and you

have over twenty thousand in payments

and over 200 transactions you're very

likely to get a 1099 K form this form

per divides 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 a process of doing now meaning I

enter the paypal fees on Schedule C is

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 a as the purchaser or when we

are paid with a credit card we are not

supposed to send a 1099 miscellaneous

for that income also 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 network like PayPal or

stripe I'm not responsible for reporting

that income in terms of using a 1099

miscellaneous because that's on the

payment processor to do that now well

the problem I've encountered is that

I've had at least one client sending

thousands of dollars of payments that

was not aware of this what happened the

income has then been reported twice the

income was reported within the 1099 K

PayPal gave me I went in looked at the

reconciliation report and I can see all

the transactions that clients sent which

the client also reported on a 1099

miscellaneous are all then reported to

PayPal in the 1099 K also that means the

income was reported twice to the IRS the

same income was reported double now

obviously I am not expected to pay tax

twice on the exact same income the

limitation is that the IRS has automated

system set up that look for under

reporting or not reporting income I've

read some conflicting advice from

Certified Public Accountants answering

questions online about how to handle

this here's how I'm choosing to handle

it I'm choosing to handle it when a

client has double reported the income a

I tell the client to make sure it

doesn't happen again next year and say

look will you please not report this on

a 1099 miscellaneous if you use a credit

card to pay or use money send money to

friends and family on PayPal that way it

won't get included in the 1099 K then

you can send it to 99 miscellaneous so a

it's a

to me to educate whoever's paying on

this tax law and then be I need to

handle it this year without preferably

reducing the income because if I just

start subtracting things from the 1099 K

then it looks like I'm under reporting

my income according to the automations

the IRS has set up this is what I've

read from one CPA and I read it from

another seller on Amazon whose friend he

said simply reduced his 1099 K income to

cut out all of the Amazon fees and

payments like that and then that

triggered an audit we don't want to

reduce the income reported that way the

IRS can see we've reported all of the

income we got and what we want to do and

said at least based on what I've seen

some suggestions I've seen a different

suggestion as well we want to add that

in as an expense put that in in the

relevant place to then essentially

deduct that double payment so what I've

done for the client the client who also

paid with the 1099 miscellaneous I've

reported the income both times in there

in other words I put the exact PayPal

1099 K income I put the exact 1099

miscellaneous income and then all I do

in my expenses is I add in a line

essentially an expense back to that

client for the double payment because

the client only actually paid me once

and yet these same incomes reported

twice therefore I put in an expense back

to that client to cancel out the double

income reporting then if there are

questions it's easy for me to

demonstrate Bamm in my 1099 K this

incomes reported here and in my 1099

miscellaneous the client reported it

there I was only actually paid once so

this is an expense that cancels out the

double payment which reflects the truth

the truth of one single payment sent for

this amount without reducing the income

reported to the IRS that was one CPA

suggest

for how to handle it that's the one I

agree with because after what I read and

logical you don't want to reduce the

income reported to the IRS you simply

expense that back out now with paypal

with some processors this might be

fairly straightforward if you got a

double payment you simply expense it out

this gets more complicated using PayPal

because PayPal does include some things

on the 1099 K and does not include other

things based on my calculations I am NOT

asserting this is the absolute correct

answer but when I calculate the mass

payments the mass pay payment plus the

website payments plus the Express

Checkout payments the number is within

20 dollars or so of what K PayPal

reported on the 1099 K and when I

subtract out general payments and mobile

payments from the total it appears at

least cross-checking the general

payments with the 1099 reconciliation

report that PayPal is not including

general payments or mobile payments in

the 1099 k total these apparently are

cash equivalents that means it's the

same as if someone just made a check

directly to my bank account or made a

payment directly through some other

service that doesn't count as a

third-party reporting transaction just

having direct deposits and a bank

account does not trigger a 1099 K at

least as far as I'm aware

therefore when using PayPal we need to

specify and help the people paying us

provide the correct method using a

website payment Express check out our

mass payment results in it being added

as a 1099 k if we have clients or we are

paying people who are determined to use

the 1099 miscellaneous system or who

just want to be paid with cash

equivalents instead of credit cards we

can use a send money to friends or

family or we can send mobile payments

that said PayPal asks that when we pay

for goods and services we do it through

a payment for goods and serve

because for PayPal's accounting and for

putting it on the 1099 k it all does it

automatically then however if you have a

client you know is sending a 1099

miscellaneous who refuses not to or who

demands that they have to because of

their accounting using a general or

mobile payment can get around paypal

triggering a 1099 k if you think that's

not complicated enough then we can get

into the coinbase 1099 k reporting

coinbase sent me a 1099 k for a hundred

plus thousand dollars in 2017 which

reflects the total amount of payments

sent in to me now if that's that what am

I supposed to do with that because some

of those payments I literally sent say

ten thousand dollars out to bit Rex

traded some and then sent nine thousand

back after having lost a thousand

dollars and then on the 1099 K it just

gets reported nine thousand dollars so

it looks like I just got nine thousand

dollars in the way I'm planning to

handle this is to put it on cost of

goods sold because the 1099 K in from

coinbase reflects essentially sales that

I've got in from somewhere else if it

cost me ten thousand dollars to put it

in there and then I get back nine

thousand then the income is the nine

thousand with the gross sales and it

cost me cost of goods sold ten thousand

dollars to get that nine thousand

dollars back in now this may not be the

absolute best way to do it either

especially when it's capital gains so

the income I'm not reporting any capital

gains income over a year this year on

coinbase now next year I will be

reporting that where then I will want to

separate that out and put that in as

capital gains this theoretically could

be done through cost of goods sold to I

could simply put the total 1099 K in put

all of the things that were cost of

goods sold and then simply report that

in

as capital gains on a different section

so it could theoretically all be done

but PayPal's reported this straight to

my business as has stripe and coinbase I

believe is sent it directly through my

business as well and because I've got a

bunch of payments that are for my

business directly in that 1099 k as well

therefore it seems the easiest thing I

can do is use cost of goods sold to

simply cut out the things in the 1099 K

that do not correctly apply to or to cut

out the expenses I had relevant to

generating that 299 K like I just said

if I sent 10,000 out and got 9,000 back

out of that 10,000 it cost me 10,000 to

essentially generate that 9,000 in sales

and then if I'm paying capital gains on

it somewhere else

I could put theoretically let's say send

out 1,000 and then I got back 10,000 I

could theoretically put 11,000 on the

cost of goods sold on Schedule C for my

business then I go in in my personal

income under capital gains and I put in

I put in the appropriate numbers in

there which then would be the capital

gains of $10,000 and then I pay tax on

that capital gains instead of paying it

as a part of my business income in that

respect I've essentially canceled out

all of the income relevant to my

business with cost of goods sold and put

that in directly to capital gains while

getting that 1099 K form to my business

what's challenging with the taxes is

this is very much enough artwork we have

a lot of choices as to how we can go

about report things while the IRS

provides clear guidelines in some places

for a lot of things it's not precisely

clear exactly what to do and different

certified public accountants provide

different answers and then the answers

may vary by state as well depending on

whether state taxes are involved or not

and

the IRS changes things from year to year

to meaning one year it was appropriate

to do it this way the next year you have

to change it therefore with the taxes to

me the key thing is to do our best in

honestly reflecting our income to report

our income and our profit especially for

business in a way that's accurate in

other words if we get audited and if we

didn't put things in exactly the right

spot but the numbers come out correctly

then it's all good the place the IRS has

a problem is when we've screwed around

and underreported or failed to report

our income or done our accounting in

such a way as to artificially reduce our

tax burden I do my best

to pay what is right and that means sure

now I want to pay the lowest tax

possible and at the same time I want to

pay an amount that I feel good about an

amount that if there is an audit I feel

good about that I say look I know I did

this to the best of my ability I

intended to pay every dollar of tax I

was responsible for and I intended to do

my best to minimize my responsibility

just through however I set things up for

example to make sure I include all my

advertising expenses all some business

owners are not aware of all the things I

was not aware of some of the things you

could deduct as an expense related to

your business when I got started and the

idea it and things using things like

capital gains it's better to buy

something and hold it for a year and

sell it at the capital gains rate then

it is to just buy it and trade it back

and forth you have to sell it at full

income using that as the strategy to

reduce income is totally legal and

therefore you want to do that whenever

possible for crypto currencies for

example better to buy and hold something

for a year and then you can sell it at

most likely a much lower tax rate that

is reducing your tax burden and tax

liability through smart planning

therefore I try and use a combination of

smart planning accurate accounting

to report my income and also not to

trigger any automated problems with the

IRS and so I can sleep at night when I

get a letter from the IRS with questions

I got one letter because I had two

businesses open and PayPal sent the

income to one I put the income on

another the IRS was confused I sent a

letter back saying I already paid that

on this other business they quickly

verified that then I don't have to be

afraid I know if if the IRS wants to see

my full books here have everything

there's nothing behind I hope this has

been useful for you because I googled a

bunch on this particular subject 1099 K

1099 miscellaneous double income

reporting coinbase 1099 K I couldn't

find a lot of good information about it

I've produced this with the hope that

this is good information and it's a

helpful part of your research if you're

doing your own taxes or trying to help

someone else out with theirs thank you

very much for watching I love you you

are awesome I hope this video has been

helpful and the accompanying blog post

with it's been helpful as well

test I'm good I'm glad my mic wasn't

muted that would have been been awkward