Accidentally sent money from Paypal to personal account rather than our non-profit account. What do I do with the 1099K from paypal?

[mckeem1]

Hi 

I have seen some guidance on this but it has been a bit conflicting, with some posts saying do nothing, while others say report it.  Here is what I have:

I accidentally sent about $26,000 from Paypal to my personal account rather than our 503(c)3 nonprofit account.  When I saw the money in my account, I had my bank move the money from the personal to business account (both are at the same bank.)

Now I am worried about how to report  this.  I use the Home and Business TurboTax for personal and we file 990 forms with the IRS for the non-profit.

Do I:

1.  Do nothing and wait for the IRS?  (Which feels really wrong.)

(https://ttlc.intuit.com/community/taxes/discussion/re-i-transferred-money-from-my-personal-to-busine...)

2.  Report it as Other Income and then deduct the 26,000, as some posts have indicated. 

3.  Or do I report as Other Income ($26,000) and then a second Other Income (-$26,000) to zero out the total as other posts have indicated.  (https://ttlc.intuit.com/community/business-taxes/discussion/received-1099-with-personal-name-instead...) 

Within our Paypal account, I do have our non-profit EIN and my own SSN listed.  

Any ideas?

[Critter-3]

All three options are valid ... my personal preference is option 2 on the Sch C. 

[mckeem1]

Thanks!  And just to confirm this can be done in TurboTax online or do I need the DVD (which is interesting since I no longer have the devices in my computer.)

[Critter-3]

Either program can do the job ... the ONLINE version will require the Self Employed version but any of the Downloaded ones will work. 

[Opus 17]

The "official" IRS instruction when you receive an incorrect 1099 is to file by mail, and attach a copy of the 1099 and a written explanation.  In this case, presuming that PayPal account sends a 1099-K for your personal account indicating receipt of $26,000 that is not actually your personal or business income, you would leave it off your return, file by mail and attach a written explanation of why this is not personal taxable income.  (This would be similar to if you received gifts in your personal account that were not for work performed, such as gifts to pay medical expenses from a crowdfunding campaign.)

Of course, filing by mail is slower.  I don't understand your explanation of #2, you can't take an itemized tax deduction and I don't know what other kind of deduction you are thinking of.  #1 and #3 are both valid, although both may result in an IRS letter, to which you will respond with the same kind of written explanation. 

[mckeem1]

For the option 2 - I saw this in another post that you would enter it as Other Income and then somehow deduct it in a different section of TurboTax.  But it seems that would not get the full amount of the deduction.  

So I think that I am going to be sending in my taxes, which scares the crap out of me.  On our 990 forms we have filed, the IRS has lost the paper copies 2 times in the last two years, so I have little faith they won't do the same when I file personal taxes. 

[Opus 17]

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@mckeem1 wrote:

For the option 2 - I saw this in another post that you would enter it as Other Income and then somehow deduct it in a different section of TurboTax.  But it seems that would not get the full amount of the deduction.  

So I think that I am going to be sending in my taxes, which scares the crap out of me.  On our 990 forms we have filed, the IRS has lost the paper copies 2 times in the last two years, so I have little faith they won't do the same when I file personal taxes. 

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There is no option #2, not as you describe.

If you also have a schedule C business, and you received money meant for the 990 non-profit, you could report the money as business income and then report it as a business expense on your schedule C and issue a 1099 to the non-profit.  That would not be correct either, but would probably satisfy the IRS computers.   That might be what you are suggesting as #2.

If you pick #1, then you can e-file, and send a written explanation when requested.  #3 will also allow you to e-file, but could end up with a request for the same written explanation.  #3 seems to be the "standard answer" of many experts on this forum including most Turbotax Pros (when they are here, which is usually only "in season").   I do prefer my own answer of paper filing because it is the most correct, but I probably wouldn't do it this year if I was expecting a refund, because I'd never know when I would get it.