If you sell items online, accept payments through apps, or run a side business, you may receive a Form 1099-K at tax time. Many people are surprised when this form arrives, but it simply reports payments you received through third-party payment platforms like PayPal, Venmo, Square, Stripe, or online marketplaces.
A 1099-K is a tax form used by payment processors to report transactions for goods or services. The form shows the total amount of payments processed through that platform during the year. Because the IRS receives a copy as well, they expect that income to be addressed and reported on your tax return.
In most cases, if those payments were for goods or services, they must be reported as income. For people with a side hustle, gig work, or small business, this income is typically reported on Schedule C. However, receiving a 1099-K does not automatically mean every dollar on the form is taxable…
Why It’s Important to Review Your 1099-K
In some cases, a 1099-K may include personal transfers, reimbursements, or money from friends and family, which generally are not taxable.
The form reports gross payments, meaning it does not subtract platform fees, refunds, or business expenses. Because of this, the amount reported may make it appear that you earned more than you actually did.
For example, the form does not account for:
- Processing fees
- Refunds to customers
- Cost of goods sold
- Business expenses
These deductions are typically accounted for separately on your tax return so that only your net income is taxed.
This is why proper bookkeeping and accurate tax reporting are important. A tax professional can help make sure you report the correct net income, not just the total payments listed on the form.
You Don’t Have to Navigate This Alone
Moore Paquette specializes in helping with all tax questions. Let’s talk.
Call us at: (818)845-1964 or send us a message through our website.
Disclaimer: This blog is for general informational purposes only and does not constitute tax or legal advice. Tax situations vary, and you should consult a qualified tax professional regarding your specific circumstances.