1099K for credit card transactions includes sales tax and Duplicate Income total

[paulasmith]

Received 1099-K for credit card transactions/payments. These amounts include sales tax.  They also do not accurately reflect the amounts that were deposited into my bank account. Their fees were deducted from the payments.  What was actually paid to me was incorrectly stated because of their fees and the fact that they included sales tax on each of the transactions.

I'd already entered my sales receipts into QBooks so when I entered this amount for 1099-K, it added the two together.  This means all credit card sales were duplicated.  I know how to fix the issue with their credit card fees simply by entering the total fees as an expense on Schedule C.  However, I don't intend to pay income tax on sales tax that was paid to our State Comptroller.  

My solution would be not to include the 1099-K at all on my tax return.  I saw this same solution mentioned in another discussion - not to list the 1099-K into Turbotax.  However, they went on to say that as long as the Gross Receipts or Sales total on Schedule C was the same as what the 1099-K form shows, it would not cause a Red Flag. That makes no sense to me.

The amounts included on this 1099-K are strictly the credit card sales receipts and do not include the cash and check sales.  So my Gross Receipts & Sales amount on Line 1 of Schedule C will reflect a different total than shown on 1099-K.  Also, my Sales Receipts amount does not include sales tax. These two numbers, Gross Sales Receipts and 1099-K totals will never be the same.  Will excluding the 1099-K form from my tax return cause a Red Flag if I've included all of my sales receipts which include all cash, check and credit card sales?  Please reply ASAP so that I can complete my tax return.  Thank you for your help!!!!

[KrisD15]

I suggest you enter the 1099-K and then have a miscellaneous expenses called something like "1099-K duplicate reporting" and just expense the entire amount if everything is accounted for another way. 

If you do it this way, do it this way every year unless the IRS suggests something different. 

The IRS likes consistency and if you tread the 1099-K this way every year, the IRS and their computers, will have an easier time deciphering your intentions. 

[paulasmith]

To make sure I understand correctly...I enter my gross sales receipts as I've always done on line 1 Sch C.  I'd go ahead & enter the 1099-K amount, as well.  Would I enter the 1099-K duplicate reporting entry on Sch C Other Expenses or is there a better place to put the entire 1099-K total?  That total is a pretty large number since it represents 9 months of credit card sales for the shop. 

That brings me to one more potential problem that just came to mind.  In our shop, my business partner owns her own business.  Her part of our inventory was the gift items.  My part was the apparel & accessories.  We were partners in spirit but not financial partners.  We ran all of the sales for the shop thru the POS & all credit card sales were processed on the same terminal.  At the end of each month, I'd run a report that gave us all of her sales and I'd pay her, minus her portion of the CC processing fees.  Sales taxes were paid for all of the sales thru the shop - she sent in a quarterly report detailing that her sales were included in reports for the shop. This was approved by the State Comptroller's office.  So, her sales won't be included in my Sch C gross sales receipts.  I've never had any problems in the past 12 years & I'm just trying to ensure that I don't have any this year, especially since we closed the business at the end of August.

Also, I assume that the sales taxes and the processing company's fees will be taken out of this equation because they're entered as expenses.  Is that correct, because I sure can't afford to pay income tax on sales tax?  I'm not that good at understanding accounting procedures so I apologize for how limited my knowledge is.  My concern is this:  once you compare the total amount submitted on the 1099-K to my total gross sales receipts (Line 1, Sch C)  these two numbers will not be the same. My total also includes all of the cash & check sales.  I just want to make sure that I'm not doing anything to cause Red Flags.  

Thank you so much for your help and for getting back to me at your earliest convenience to clarify.

Paula                                                                                                                                                                                                                                                                                                                   

[ThomasM125]

As long as your business sales as listed on the schedule C are more than the amount reported on the 1099-K schedule you should be OK. The IRS will see the amount reported on the 1099-K schedule and look to see at least that much as business sales reported on your return. 

[paulasmith]

The problem is that the 1099-K total is added to my gross sales receipts which already include these credit card sales.  I'm trying to get to the Schedule 1 to manually enter the amount on Part 1, 8z and then again in Part 2, under adjustments to cancel out the amount entered in part 1.  I cannot figure out where in the step-by-step this would be.  I also went to forms & found the line to enter the amount, double clicked on the magnifying glass but it will not allow me to enter anything.  The field is highlighted but it won't let me type an amount.  What am I doing wrong?

[PatriciaV]

You have the option to reduce your Schedule C other income/sales by the amount from Form 1099-K that represents actual sales. Then enter the 1099-K under the income topic for Schedule C (there is a dedicated page for this form) and check the box to adjust the amount by the sales tax. (See screenshot below - click to enlarge.)

The net reported for 1099-K (on Sch C Line 1d - see screenshot) should match the amount you deducted from your sales income. These steps will avoid duplicating the income on the 1099-K.

@paulasmith