I'm a sole proprietor. I have clients who issued me 1099 NEC forms even though paid me via credit card (processed by Square). They just didn't know any better. I also received a 1099K from Square, of course, for this same income.
My understanding is that both forms (all the 1099-NEC's and the 1099-K) have been reported to the IRS, so they will think I made way more money than I actually did. I've been researching for HOURS, and so far I'm seeing the following conflicting advice, all from experts:
This is going to be a hot topic as so many people are receiving 1099K's for the first time this year.
Please help! I have a large refund due and don't want it to be held up by the IRS due to incorrect reporting.
Thanks!
Your solution is option #2. If you would happen to receive a letter from the IRS expecting more income to have been reported, you can respond with a letter back that the amount from 1099-K was already included in your sales income.
When you have a small business, you typically won't be using the 1099-K entry. Rather, the amounts from 1099-K will already be included in your sales. You can enter the income reported on your Form 1099-K as self-employment income on Schedule C, the same as you would report cash, checks, etc.
See this article for more information: IRS Form 1099-K: What Online Business Owners Should Know