1099-K and Accruals, Deferred Revenue, Schedule C

[info14]

I use accrual accounting for my sole prop. and file on Sch. C.  A significant amount of the 1099K I received is not recognized revenue for 2016 (made to order items in production and not yet shipped to clients).  I know the 1099K is essentially cash basis.

Is it recommended to report all 1099K earnings and then a Misc. Expense specifying the amount of deferred revenue in TurboTax Home and Business, so that my net income matches my accrual-basis accounting records?  Or should the actual 2016 sales revenue only be reported (doesn't seem wise if the 1099K number is a lot bigger)?  Or another option?  Where should it be specified on my return that much of the 1099-K is deferred revenue, if anywhere?

[AmyT · Accepted solution]

If the total recipts you report for the year exceed the amount reported on all 1099s that you receive, you will not have any problems if you only include the income actually earned.  However, even if you need to report the full amount, there is a workaround.  You will want to report the amount included on the 1099 but NOT earned during 2016 as a miscellaneous expense.  Use "1099 income - deferred revenue" as the expense description.

Please note that whether you reduce your Schedule C income or treat the difference as an expense, it will be 2017 income to you that will not be included in the 1099 that you receive from that customer.