Our firm receives client trust deposits via electronic payments. These belong to the client but are held in trust until they are either billed or the money is returned. The provider issues a 1099-K for the gross deposits -- what is the correct way to offset this? It is not income to the firm. Do I enter negative miscellaneous income, create a miscellaneous expense, or enter the amount in returns and allowances?
I assume this is a common issue with trust accounts (sometimes known as IOLTA accounts) and electronic payments but I couldn't find any guidance on how to handle it in TurboTax or on the Schedule C.
Thanks!
@taro wrote:
Do I enter negative miscellaneous income, create a miscellaneous expense, or enter the amount in returns and allowances?
Either Refunds and Allowances or Other expenses.
@taro wrote:
Do I enter negative miscellaneous income, create a miscellaneous expense, or enter the amount in returns and allowances?
Either Refunds and Allowances or Other expenses.
Thank you. It looks like there is (new?) a checkbox when entering a 1099-K in order to exclude amounts that are non-income. This seems like a better way to go.
An IRS form 1099-K may be reporting personal item sales that resulted in a loss on sale of personal property.
At the screen Personal Item Sales, you may select All items were sold at a loss or had no gain.
The entry will be reported:
Make sure that you keep records of all transactions. Later, you may need to demonstrate to the IRS that this is not taxable income.