The 1099-K I recieved from my Credit Card Processor included my gross sales, including money I collected at Sales Tax for Arizona.
I have seen a few discussions about this, but I'm still looking for a definitive answer on how do I account for this on my taxes so I'm not paying taxes on the sales tax I collected.
Do I
1) Instead of entering in the amount on my 1099-k, I subtract the sales tax collected and enter that instead This seems the least correct, as what I put on my Schedule C as gross income will differ from my reported 1099-K, and would be an audit red flag.
2) In the section for expenses, specifically the Taxes section for deductions, include TPT collected there.
3) something different?
Supplementary question, the sales tax is collected all year long, but isn't remitted to the state until the following month. Do I still deduct December 2024's sales tax collected (since it isn't 'income'), but isn't paid to the state until January 2025?
Which one should I do?
Thanks in advance.
Normally, you would NOT report the sales tax collected on items as income but you are correct that the 1099-K reporting makes you susceptible to audit for underreporting. Because of this, I would include the amount reported on the 1099-K and then add an expenses for the sales taxes paid on the Schedule C. If you received the December sales tax in 2024, you would report the income, but then deduct the expense in January if you are using Cash method.
the sales tax collect is not your income. i would take a deduction in 2024 for the December 2024 sales tax remitted in January 2025
Sales tax collected is a liability and should not be included in gross income. Neither should the payment to the state/local government be deducted as an expense. Please read IRS Publication 334.
however, you have no choice because of the 1099K so the only way not to include it as income is to take a deduction