1099-K and Payments not related to sales

[warpedx]

I got a form 1099-k from paypal.  The issue I have is that the amount its giving me for sales is off as I also have a couple payments that were sent from family and friends and a couple payments sent from a working capital company. 

When Turbotax asks about the 1099k and the figure. I enter that but what do i do about the amounts that werent part of the business at all.  I would be nervous if i entered a different figure than what appears on the 1099k would trigger flags for an audit.  Is there any type of standard way of entering the non taxable income shown on the 1099k?

[DianeW · Accepted solution]

You should report only the income that is derived  from sales from your business activity.  Be sure to clearly identify any payments that were not business related or were business loans (which is not income).  And keep the records for future use.

There is no need for concern as long as all of your records are in order. 

Form 1099-K income is not entered in a document screen.  Instead it is reported on the form where you would report all income for this activity such as a Schedule C for self employment or Schedule E for rental income.

You will be able to deduct fees, commissions, phone rental payments, mileage (if you keep a log), etc.

To get started in TurboTax Home & Biz:

• In the search box type schedule c
• Jump to schedule c
  
• Enter self employment income/expenses
  

If your Form 1099-K is for rental income (not common), enter this income along with your other rental income in TurboTax.

[warpedx]

Great, thanks so much for your answer.  So what i should do is look at my actual income received from sales and put that on the general income screen and ignore the 1099K?  

Do I just keep a personal record of the amounts not included so if they request, I have it handy?

[DianeW]

That is correct.  You always want to clearly track any income coming into your account that is not business income.

[shannon2]

I saw a different answer to the same question on this site that stated that business owners who collect sales tax should include those dollars in the gross income (as indicated on the 1099K form) and then list the sales tax amount under Tax & License expenses. That seems like a great way to avoid reporting a different income than what is shown on the 1099K form, but TurboTax did not list "state sales tax" as an example of appropriate items to be listed in the "Tax & License Expenses" section. Which is the safer way to go: not including sales tax collected in the gross income figure as recommended here or including sales tax collected in gross income but also listing the amount collected & paid in the Tax & License Expenses section as recommended elsewhere on this site? Thanks for you help!

[DianeW]

If you ask your question through Answer Exchange, instead of writing a comment on a different question you will have individual tracking for your answers.  It will be easier for us to help with your specific situation if you post your question.
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[shannon2]

Okay, but my question is not a different question. It's just that there are two different answers given by TurboTax experts like yourself. I went ahead and posted my question as you suggested even though it is the same as other questions already posted on this site. Hopefully someone can tell us why there are two completely different answers to the same question and which one is less likely to be flagged by the IRS.

[DianeW]

It's not wrong to include the sales tax collected in your income and then expense the sales tax paid as you indicated.  It provides a much easier audit trail for yourself and automatically includes in income the amount that is discounted for early or on-time payment of the sales tax.