How do I handle a 1099-K from PayPal with several different items in it (including non-taxable)?

This can be handled in TurboTax by reporting Form 1099-K in Wages & Income under Miscellaneous Income, 1099-A, 1099-C. This is the location to also report the appropriate reductions.

To do this in TurboTax, follow these steps:

• From the left menu, go to Federal and select the first tab, Wages & Income
• Add more income by scrolling down to the last option, Less Common Income, and Show more
• Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
• Choose the last option, Other reportable income and Start and Yes
• Enter the applicable description and amount and Continue
  • First, enter Form 1099-K as received. It is essential that the full amount be entered.
  • Next, you can enter in each adjustment separately for your gambling winnings, eBay sales and each of your other adjustments as negative amounts. This will effectively reduce Form 1099-K and satisfy the IRS that Form 1099-K was reported as received.
• At Other Miscellaneous Income Summary, on the left side below the list, click + Add Another Income Item

1. Yes, you are correct that you can zero out the income with the cost of the used items, but the reduction is only allowed to the extent of the earnings. 

2. Not exactly. Actually, gambling losses are only deductible if you itemize and only to the extent of winnings. Since you are properly reporting the gambling winnings in full, only subtract $1,000 here from the Form 1099-K with the explanation that it is already included elsewhere in the return, such as "Reported on W-2G in full." 

To report gambling winnings and losses, follow these steps once you are at Wages & Income.

• Scroll down to the last category, Less Common Income
• Gambling Winnings  and Start
• Follow the interview and report the winnings and Continue
• Report the losses on the next screen, Let us know if you had any gambling losses in 2020

  You can deduct gambling losses as an itemized deduction up to the amount of your gambling and prize winnings. and select Done

Thank you. I think there are a lot of us that are going to have this problem this year. And, I will be closing PayPal. You can now transfer gambling winnings straight to your bank account. 

It is important that you report the information on your 1099-K.  The IRS receives a copy of your 1099-K and will take action if you do not report the 1099-K on your tax return.

You may report any items on your 1099-K that are not related to business activities such as payments to friends and family, coffee & donuts from the local store, payments to local stores, etc., as other income. 

 You will need to make two entries for your non-business items; one as a positive amount to show the personal items reported on the 1099-K, the second as a negative value.  This reports the personal 1099-K items and removes them from being taxable income. 

To enter your personal 1099-K items sign in to your TurboTax account if it is not open and follow these steps:

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to the line Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income scroll to the line Other reportable income and click start.
5. On the page Any Other Taxable Income select yes.
6. On the page, Other Taxable Income enter a description indicating Personal 1099-K and amount.
7. Select continue.
8. Select done on the next page

Repeat the above steps again this time in step 6 add the amount as a negative value

This will report your personal 1099-K items and remove them as taxable income.  Any remaining amount will be reported as business income.

@Raiofhope

Hello....

I am in this same situation but i have a question. I received a w2g for winnings exceeding $1200. Since these winnings were included in the amount of the 1099K do I subtract them from the amount since they will be reported on in the W2G section or do I still put the full amount of the 1099K and negative out the full amount?

Thanks,

It is important that you report the information on your 1099-K.  The IRS receives a copy of your 1099-K and will take action if you do not report the 1099-K on your tax return.

You may report any items on your 1099-K that are not related to business activities such as payments to friends and family, coffee & donuts from the local store, payments to local stores, etc., as other income. 

 You will need to make two entries for your non-business items; one as a positive amount to show the personal items reported on the 1099-K, the second as a negative value.  This reports the personal 1099-K items and removes them from being taxable income. 

To enter your personal 1099-K items sign in to your TurboTax account if it is not open and follow these steps:

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to the line Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income scroll to the line Other reportable income and click start.
5. On the page Any Other Taxable Income select yes.
6. On the page, Other Taxable Income enter a description indicating Personal 1099-K and amount.
7. Select continue.
8. Select done on the next page

Repeat the above steps again this time in step 6 add the amount as a negative value

I received both W2G and 1099k. All of winnings when through PayPal. I don't want to be taxes twice. I already added my w2g on my taxes which includes the winnings on my 1099k.  I don't want to be tax twice. 

Please advise? Thx inadvance.

You will want to enter both forms into your tax return just as they have been reported to you. You enter the 1099-K and Form W-2G in Less Common Income following the steps @LeonardS outlined above. 

After you have entered both forms in their entirety, you can enter a negative value in the Miscellaneous Income section of Less Common Income for the amount reported on your W-2G. That way it is only being taxed once. It will be reported once on your W-2G, once on your 1099-K, and then one of those will be subtracted from your taxable income by entering the value as a negative in Less Common Income. 

@Tee99

I found this answer very helpful. I have recently started online sports gambling in 2022 and I deposited I bet $1,000 and won $3,500. I did this all on draftkings, and have a current account value of $3,500 on draftkings. Therefore I have profited $2,500. I am concerned to withdraw the money with PayPal because I've heard of the outrageous tax circumstances people have gotten into. But based on what you're saying, should I receive a W2G from draftkings saying I made $2,500 and a 1099-K from PayPal saying I made $3,500. Based on the information you provided, shouldn't I be able to withdraw with PayPal and not be taxed on both the $3,500 and the $2,500?

Whether or not you withdraw this, you need to include it on your return and yes, you will only be taxed on the amount once, not twice.  These are realized winnings, this is not like the stock market where you invest and let your money grow.  

Gambling winnings are taxable in the year you win them.

I’m still a bit confused. Am I able to enter the full amount as negative? Or only the amounts reported on my W2gs? Because it will still be an inaccurate depiction.

Are you entering 1099-K's or W2-g's?  Does the form report a negative amount?

Gambling winnings can be reported at Federal / Wages & Income / Your Income / Less Common Income / Gambling Winnings.

If you are entering 1099-K's from PayPal, are you following these directions to post the income?

• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Click Show more to the right of Other Common Income.
• Under Your income and expenses, click the Edit/Add button to the right of Form 1099-K.

When you reach the screen Choose which type of income your 1099-K is for, what income are you selecting?

Or are you selecting multiple incomes?  Please clarify.

I have a 1099k that is all from paypal. most of it pertains to gambling and i believe i can itemize to help offset. i have all my gambling logs to show the losses because it’s well over 200k. And my 1099k is for 189k. Help please. I don’t know what to do since these were not business transactions

I am going to assume that you are a casual gambler rather than this is your business. I have added hobby versus business at the bottom. Please determine if you are in fact a casual gambler before proceeding.

Grab a calculator or make a spreadsheet. Next, go to the income section, scroll down to

Other Common Income. Select income from 1099-K. 

Since you received a 1099-K for multiple things, you have to break it down for each category.

• If you had hobby income, select that button, enter the 1099-K information except the income. Instead, use your calculator determine all income related to hobby and enter that amount.
• Next, personal item sales, enter the 1099-K information again except for the income. Use the calculator and determine the personal item sales.
• Continue doing this through all of the options that apply to you. Gambling is not listed so the majority of your transactions will be lumped into other taxable income, the last option.

Topic No. 419 Gambling Income and Losses for the casual gambler notes:

You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as "Other Itemized Deductions."

Earning side income: Is it a hobby or a business? states:

What the difference between a hobby and a business? A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit.

Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:

• Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
• Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
• Whether they depend on income from the activity for their livelihood.
• Whether any losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
• Whether they change methods of operation to improve profitability.
• Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
• Whether the taxpayer was successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and how much profit it makes.
• Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.

I'm in the same situation. I used paypal to both deposit and withdrawal gambling money. I'm got a 1099K for over 200K yet I did not actually get 200K and basically broke even. I was also received a W2G from the state lottery, which includes these paypal winnings withdrawals and deposits. A clear answer from someone would be awesome otherwise we will be taxed twice. 

it depends.  Does your 1099K just include gambling money or are there other transactions reported?

@InLikeFlynn1

Just gambling.  I would withdrawal the winnings through paypal and deposit into with paypal either using the winnings or from my bank account.  My casino account for the year shows a negative $7k.  The 1099K also includes winnings I received from the online lottery, however, the lottery also sent me a W2G which includes these monies.

You had gambling receipts that will be recorded on W2-G's.  The receipts were only deposited and withdrawn from the the Paypal account.  So the Paypal account performs the same function as a dedicated checking account.  Am I correct?

A 1099-K that reports income that is not accurate should still be entered into your tax return but then backed out.  It is important that you retain records of what you did should a taxing authority ask questions about this income down the road.

To report Other income, follow these directions.

• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Click Show more to the right of Other Common Income.
• Under Your income and expenses, click the Edit/Add button to the right of Form 1099-K.
• At the screen Did you get a 1099-K? click Yes.
• At the screen How would you like to enter your 1099-K? click Type it in myself.  Click Continue.
• At the screen Choose which type of income your 1099-K is for, select the button for Other income.  Click Continue.
• At the screen Let’s get the info from your 1099-K, enter the information.      Click Continue.
• At the screen Your Other 1099-K income, you enter further information for the Other income.  Click Continue.
• At the screen Your 1099-K summary, notice that the income relates to Other income.  Click Done.

Other income may need to be reversed if some or all the income reported on the 1099-K is not accurate.  Post the negative entry as follows:

• Down the left side of the screen, click Federal.
• Down the left side of the screen, click Wages & Income.
• Click Show more to the right of Less Common Income.
• To the right of Miscellaneous Income, 1099-A, 1099-C, click the Start / Revisit button.
• To the right of Other reportable income, click the Start / Revisit button.
• At the screen Other Taxable Income, enter a description such as “Other income reversed” and a negative amount. 

The entries will be reported:

• on line 8z of Schedule 1 of the Federal 1040 tax return, and 
• on line 8 of the Federal 1040 tax return.

Make sure that you keep records of all transactions. Later, you may need to demonstrate to the IRS that this is not taxable income.

[Edited 1/29/2023 | 7:46 am PST]

@InLikeFlynn1

I'm not sure that answer makes sense to me.  I have the same situation where I have received both w2g's and a 1099k for the same winnings as wellas deposits I madethrough PayPal.  You say to offset the w2g's with a negative number in misc income and claim the 1099k income.  Doesn't it make more sense to offset the 1099k amount and claim the w2g income?  My thought is that all of the 1099k income would be included in the w2g amount, but all of the w2g income isn't necessarily in the 1099k amount as that would only be money that was cashed out.  Gambling winnings are income even if you don't cash it out right?  Maybe I'm wrong, but I thought that was the point of the w2g being issued as soon as you win an amount above the threshold.

You will need to report both forms.  You will follow these steps to enter the 1099-K and Form W-2G in Less Common Income.  

To enter your personal 1099-K items, sign in to your TurboTax account if it is not open and follow these steps:

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to  Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income, scroll to " Other reportable income " and click start.
5. On the page Any Other Taxable Income, select yes.
6. On the page Other Taxable Income, enter a description indicating Personal 1099-K and amount.
7. Select continue.
8. Select done on the next page

Repeat the above steps this time; in step 6, add the amount as a negative value.  Repeating steps 6-8 is to reduce the items that were received for personal use.  For example, payments to friends and family, coffee& donuts, amounts to a local store, etc.  

To report the gambling winnings and losses, follow these steps:

1. Scroll down to the last category, Less Common Income
2. Gambling Winnings  and Start
3. Follow the interview and report the winnings and Continue
4. Report the losses on the next screen
5. You can deduct gambling losses as an itemized deduction up to the amount of your gambling and prize winnings. And select Done

@RJDPA

Thanks for the  clarification, one more question though.  You say to deduct personal payments such as coffee with friends, but what about the duplicate income that was also reported on the w2g's?  Do I also deduct that so I'm not reporting it twice?

Yes

when income is reported on more than one tax form, you'll need to enter the forms, and then enter an adjustment.

Use the description "Duplicate income reported" or something similar so the IRS will understand why the adjustment is being made.   

But what if it's not reported  in 2 places?

For instance, I did not receive a W2-G or a 1099 MISC, just a 1099K similar to other posters (for $160k)

I had losses across the board.  Fantasy sports, investments, etc. 

I zeroed out the 1099-K with the same amount as a negative, with the description "Fees/Deposits, Other Income Reversed".

Am I doing the right thing?