Form 1099-K from PayPal (PSE)

[maximgt]

Can someone elaborate on the purpose of Form 1099-K issued by a PSE such as Paypal, for instance?

We know that Form1099-K is issued whenever more than $20,000 and 200 transactions were processed via a PSE. However, there is no indication in TurboTax that the information provided on Form 1099-K needs to be reported using the software. Is the information on this Form for informational purposes only? Can someone shed some light or provide an IRS link to explain why and purpose of Form 1099-K? 

[Cynthiad66]

It is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive from your business. In most cases, your business income will be in the form of cash, checks, and debit/credit card payments. Business income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.

Click the IRS link below for more information on the Form 1099-K

Understanding Form 1099-K

[maximgt]

Thank you for your response. I will explore the IRS link as well.

However, here's my issue - If someone uses his/her PayPal account as they please, similarly someone would use bank account, for all year around payments, including but not limited to payments to friends and family, coffee & donuts from the local store, payments to local stores, any purchase and payment one can think of from Amazon to eBay, you name it, how could Form 1099-K be relied upon because the total transactions (for personal and perhaps business payments, maybe business) exceed 200 and the total payments exceed $20k?  

[LeonardS]

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.

This link How do I enter a 1099-K in TurboTax Online? has information you may find helpful.

@maximgt