1099-K for gift money received

[philomath]

Hello,

Because of the new IRS tax law regarding 1099-K's (https://www.irs.gov/businesses/understanding-your-form-1099-k), PayPal will be issuing me a 1099-K in January for payments I received this year. However, the payments I received were gift funds from family, but they were sent as if I was selling goods. Is there any way I can make sure I can tell the IRS in my tax return for next year that these payments should not be considered payments for goods?

Thank you.

[AdamNe · Accepted solution]

Hello @philomath !

If you receive a 1099-K with reportable transactions, you will need to claim those amounts on your tax return to avoid receiving a CP2000 notice from the IRS after filing. 

However, if you are sure the amounts are not taxable income to you, you can create an offsetting "other income" entry as a negative amount, and write something like "Gifts reported on 1099-K" in the description line. 

I hope this helps you! Please respond here if you have further questions. 

All best,

Adam, EA

TurboTax Live Expert

[philomath]

Thank you for the help, @AdamNe ! By entering a negative amount in "other income", do you mean on line 8 of the 1040 form?

[AdamNe]

@philomath Yes, that is right. It will show up on line 8z of Schedule 1. 

[jeremyleib]

I have the same issue, and your answer is very helpful. One remaining question, though: Where should I report the amount from the 1099-K that the IRS is expecting me to report somewhere as income? It seems a bit strange to report it as self-employment income since I didn't actually earn it. Can I just add it into my gross salary?

[Hal_Al]

Q. Can I just add 1099-k income into my gross salary?

A.  No.  It would be treated as earned income and that would be wrong.

Q.  Where should I report the amount from the 1099-K that the IRS is expecting me to report somewhere as income? 

A. Enter on line 8z of Schedule 1, as "other income". 

TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
Scroll down to:
-Less Common Income
      -Misc Income, 1099-A, 1099-C
       - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the amount.  Briefly explain at description. Call it something like "erroneous 1099-k for gift"

[jeremyleib]

You may not have noticed the suggestion above. The previous suggestion was to report the amount on the 1099-K but then offset it with the same amount as a negative number in line 8z with the note "gift reported on 1099-K." My question was, though, where to report the positive amount. If the positive amount is reported on 8z and also the negative amount to offset it is on 8z, it would just cancel to zero.

[tagteam]

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@jeremyleib wrote:

My question was, though, where to report the positive amount. If the positive amount is reported on 8z and also the negative amount to offset it is on 8z, it would just cancel to zero.

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A recipient of a gift (the donee) does not have to report the value of the gift on a federal income tax return.

If you are concerned about an audit, simply document the date and value (or amount) of the gift and/or ask the donor to provide you with a letter stating the relevant information surrounding the gift.

[Critter-3]

The IRS has not posted specific instructions on how this could be reported by non businesses yet...hopefully specific directions will be forth coming by filing season.

But going forward I would find a different way to receive cash gifts that do not have  a 1099 reporting mandate. 

Cash still works or have them send you a check, money order, wire transfer or gift card. 

[Mike9241]

I would suggest deleting the 1099- K. of all the 1099-k info that you enter: EIN, payee name, amount, etc only the amount will shows up  

i would enter through other income  - gift reported on 1099-K   $$$$

then another entry 1099-K for gift - nontaxable   -$$$$

yes they will both appear on line 8z of schedule 1 and net to zero which is what you want

if you use the adjustment line for the 1099-K nothing shows up on your return so you'll likely get a notice from the iRS 

my recommendation is only a suggestion because the IRS has provided no guidance on how to report 1099-Ks that do not represent income. you could still get a notice