1. Yes, you can pay tax by reporting amounts as business income when no form was issued.
By reporting the "in and out" the IRS sees Form 1099-K as expected, as well as business expenses or separately stated reductions of the income received. The main thing is that the full amount as received is reported on the return.
For the income without forms, enter a single income number and keep your supporting documentation for your records. Any related business expenses can be deducted.
2. The difference can be explained by what is reported on the tax return now. To report the items that reduced the income but were not actual expenses, you cannot report this as negative income in TurboTax when you are reporting self-employed income from Form 1099-K. If it is not self-employed income being reported to you on Schedule-K, then see this article: 1099-K from PayPal for an alternative approach.
There are two options to report it. The tax effect is the same either way.
Option 1: Use the Rebates and refunds option under Less Common Income when reporting income.
Option 2: Include the income reduction with the expenses, and clarify it with the description.
To do Option 2 in TurboTax:
- Go to Self-employment income & expenses and Edit/Add
- At Your 2020 self-employed work summary, select Edit
- Scroll down to EXPENSES and click in the lower left hand corner, Add expenses for this work
- Scroll to Other miscellaneous expenses select the toggle, scroll to the bottom of the page and click Continue
- Enter a Description in reference to the tax form if you wish, such as Form 1099-K Cash Back from Rakuten, the amount, and Continue
[Edited 01/27/2021 |8:48 AM PST]
@drnag
