If I received 1099NECs for sales of physical goods instead of 1099MISCs how do I file them without paying income tax on non-income (I already report profit/loss)?

[HelenC12]

Please clarify. If you sold physical goods, why are they non-income items? Are these personal items you sold and didn't have a gain on them? Are you a self-employed reseller?

[mike283]

Thanks for the reply and sorry for the lack of clarity.

I am self-employed with a LLC. 

Part of my business is consulting and training.  For the consulting, I received 1099NECs since I am a non-employee.  If I consult for $1000, then $1000 is taxed as income.

Part of my business includes selling physical goods which I obtain from a supplier.  If I sell $1000 worth of widgets that cost me $800, my profit is $200 of which $200 is taxable as income. 

However, I have 2 customers whom I sold $1000 widgets to that sent me a 1099NEC for the entire amount of the sale ($1000).  Those widget sales were straight physical-goods transactions, no consulting or other non-employee services were involved.

If I enter in the full amount they list on the 1099NEC, my income aka tax liability goes way up.  I believe their use of the 1099NEC for this situation is in error.

Upon reflection, I shouldn't receive a 1099MISC for those sales either, correct?

[AliciaP1]

Purchasing goods from a reseller doesn't require a 1099 to be sent out.  It is likely your customer has you set up in their system as a consultant with 1099 tracking turned on so it reported all amounts paid to you regardless of what the funds were for.

You should be reporting your total income as Gross Receipts for your LLC and then deducting the cost of goods sold as a deduction to that income.  You do not need to report each 1099-NEC separately.  You can add them together, or more accurately, total your receipts from your bookkeeping method, and enter Self-Employed Income into TurboTax.

To eliminate any 1099-NEC forms you have entered you can follow these steps:

1. Within the Federal portion of your tax return in TurboTax Online go to the Income & Expenses section
2. Click Edit/Add for your 1099-MISC
3. Click Delete and confirm it
4. Click Done to go back to your Income & Expenses

To enter the total of your income as self-employed income you can use the "received just cash" method here How do I report income from self-employment?

[mike283]

Thank you for the reply, Alicia.  

Since I received 2 NEC forms, I assume the IRS was notified also.  So, I am okay just adding those sales as 'other income' and ignoring the erroneous NECs AND the 'proper' NECs?  I am concerned about the IRS seeing a discrepancy in NECs sent v NECs reported.  Is that a valid concern?

To confirm, you're recommending all receipts for my LLC be lumped under "other self-employed income" in TurboTax?

Thanks again for your support and guidance.

[AliciaP1 · Accepted solution]

Yes, that is correct.  Report all the revenue together as other self-employed income.

It is not a concern with the IRS.  1099s are informational returns to the IRS and basically are just to notify that a person has this kind of income so watch for the right kind of return.  1099-NEC, 1099-K, and some 1099-MISC forms just give heads up for a Self-Employed schedule or return. 

[mike283]

I have been losing sleep over this so THANK YOU so much for your guidance.  Wish I had thought to come here sooner.  Thank you again, Alicia.