You should use the information on Form 1099-K, Payment Card and Third Party Network Transactions, in conjunction with your other tax records to determine your correct tax liability. Form 1099-K is an information return that reports the gross amount of reportable transactions for the calendar year to the IRS. Here’s how you should handle the information on Form 1099-K:
- Determine Gross Receipts or Sales: The information on Form 1099-K may be used to compute your gross receipts or sales. You should follow the return instructions on the form you are completing to report your gross receipts or sales.
- Reconcile with Your Records: Ensure that the amounts reported on Form 1099-K match your own records of income received. This is important for accurate reporting and to avoid discrepancies that could trigger an IRS inquiry.
- Report on Tax Return: Depending on the nature of the transactions reported on Form 1099-K, you may need to report the income on different parts of your tax return:
- Schedule C (Form 1040): If you are self-employed or have a business, report the income on Schedule C.
- Schedule E (Form 1040): If the income is from rental activities, report it on Schedule E.
- Form 8949 and Schedule D (Form 1040): If the income is from the sale of capital assets, report it on Form 8949 and Schedule D.
- Adjust for Fees and Refunds: The gross amount reported on Form 1099-K does not account for fees, refunds, or other adjustments. You may need to adjust the reported amounts to reflect your actual income after these deductions.
- Handling Errors: If you believe the information on Form 1099-K is incorrect, contact the filer (whose name and contact information appears on the form) to correct it. If you cannot get the form corrected, report the error on your tax return:
- Schedule 1 (Form 1040): Report the proceeds on Part I, Line 8z, and make an offsetting entry on Part II, Line 24z, to adjust for the error.
- Personal Transactions: If Form 1099-K includes amounts from personal transactions (e.g., selling personal items at a loss), you should report these transactions appropriately:
- Schedule 1 (Form 1040): Report the proceeds on Part I, Line 8z, and the cost up to the proceeds amount on Part II, Line 24z, using descriptions like "Form 1099-K Personal Item Sold at a Loss."
By carefully reconciling Form 1099-K with your records and reporting the correct amounts on your tax return, you can ensure compliance with IRS requirements and avoid potential issues.
Sources:
Publication 1220 (9/2023)
Publication 334 (2023)
Publication 5316 (11/2023)
FS-2023-6
