Request for Tax Advice Regarding Suspended Account and Unpaid Payouts

[JoeAdams]

Hello everyone! I’m reaching out for your guidance regarding my tax situation this year, as I’ve encountered an issue with my online business sales. I sold electronics through an online platform (Amazon), but my account was suspended indefinitely, and their final decision was not to release any payouts. As a result, I lost over $11,000 in sales revenue, and I’m unsure how to properly handle this in my tax filings for the year. Here are the key details of my situation:

1. 1099-K Issued: The platform issued me a 1099-K showing over $11,000 in gross sales, even though I did not receive any of these funds due to the account suspension.

2. Goods Sold: I sold approximately $9,200 worth of goods on Amazon, and all of these goods were shipped to customers. However, I never received the payout for these transactions due to the account suspension.

3. Tax Filing: If I'm using the cash method of accounting, so I know that I should only report income I’ve actually received. Since the platform withheld the payouts, I believe I shouldn’t report the $11K from the 1099-K as income. However, I also need to figure out how to handle the cost of goods sold (COGS) for the $9,200 worth of inventory I purchased but didn’t receive payment for.

My main questions are:

1. How should I handle the 1099-K gross income? Should I report it as income even though I did not receive any of the payouts, or should I exclude it entirely since I didn’t receive the funds?

2. How should I report the cost of goods sold (COGS)? Since I shipped and sold the goods, can I still deduct the cost of those goods even though I didn’t receive payment for them, and how?

3. Is there any possibility of claiming a business loss related to the unpaid payouts and the unsold goods due to the platform’s suspension and final decision?

I’m hoping to file my taxes as soon as possible, but I want to ensure that I’m handling everything correctly and in compliance with IRS rules. If you could provide guidance on the best way to approach this situation, it would be greatly appreciated.

Thank you for your time, and I look forward to your advice.

[RobertB4444 · Accepted solution]

1. You should report the income.  The IRS will expect to see it because of the 1099-K.  But you should also create an expense that says 'Account Suspension' or something like that and that expense should be the exact same amount as the payout that you didn't receive.  That will zero out that income.

2. You can deduct the full cost of shipping as well as the goods themselves.  Enter it just as if you had sold it for zero dollars.  You should have a $9,200 loss for sending items out and not receiving payment.

3. That $9,200 is the only loss you get unless you had any other associated expenses.  The only losses that you are entitled to deduct are the ones that take cash out of your pocket.

@JoeAdams 

[JoeAdams]

Thank you, Robert, for the detailed explanation!

Just to clarify, would you recommend adding the cost of goods as an "expense" or as a "refund" in this case? I want to make sure I’m approaching it correctly.

Also, do I need to attach a statement explaining the situation with Amazon, or is that not necessary for this filing?

Thanks again for your help!

[RobertB4444]

An offsetting expense and a 'return' are the same thing as far as it goes.  As long as it zeroes out the income.

You do not need to attach a statement.  You do need to maintain good records proving that they refused to send you a payout and all of that.  In case you are ever asked.

@JoeAdams 

[JoeAdams]

Thanks again for your guidance, Robert!—it's been very helpful!