The gross amount of payments made via credit cards, electronic transactions, and other platforms that control payments between two parties is reported on Form 1099-K.
Whether you’re looking to further understand if you need to file Form 1099-K or should be expecting one in the mail, Cleer Tax can help! This guide shows you everything you need to know about filing or receiving your 1099-K.
Key Takeaways:
- If you received money from any third-party network transactions or payment card transactions that exceeded a specific threshold throughout the year, you will get a 1099-K.
- Schedule C is frequently used to report Form 1099-K income.
- In relation to Form 1099-K, you might need to take extra action depending on a number of factors.
- If there’s an error on the form, such as your Social Security Number in place of the tax number of your business, request a corrected form from the payment settlement entity (PSE).
What is Form 1099-K For?
Form 1099-K is an information return, meaning you can use it to calculate other things on your tax return. The 1099-K details transaction records from third-party networks like Venmo or PayPal and can be used to calculate how much business income you receive.
Who Has to File Form 1099-K?
Prior to 2024, payment apps and online marketplaces were required to file Form 1099-K only if the gross payments to you for goods and services were at least $20,000. In 2024, the threshold has been lowered to $5,000 and will eventually be lowered even further to $600.
When is Form 1099-K Due?
There are different deadlines for filing and receiving Form1099-K:
- January 31st of the following year is used to send the recipient a copy.
- March 31st of the following year for Internal Revenue Service (IRS) electronic filing.
- February 28th of the following year for the IRS paper filing method.
Where is Form 1099-K Filed?
You can report and offset the Form 1099-K gross payment amount on Schedule 1 of your Form 1040. If you received a 1099-K, it’s essential to include it as part of your taxable income because it means that the business you received it from has reported the income to the IRS.
Where Do I Find the Newest Version of Form 1099-K?
The newest version of Form 1099-K can be found on the IRS website. If you a receiving a 1099-K for informational purposes, you should receive your 1099-K either electronically or in the mail.
How Do I Find the Instructions for Form 1099-K?
You can find general instructions for certain information returns on the IRS website at IRS.gov/1099GeneralInstructions or go to IRS.gov/Form1099K.
Why is it important to file Form 1099-K?
Filing Form 1099-K is key to determining and reporting the correct amount of income on your corporate tax return.
What if I Make a Mistake When Filing Form 1099-K?
If a business fails to report income received on Form 1099-K, the IRS might subject it to penalties for underreporting income. The penalties for underreporting income can be as much as 20% of the underreported amount, plus interest.
If you realize that you forgot to include income reported on a 1099-K, you should amend your tax return with a 1040-X as soon as possible.
What Documents are Required to File Form 1099-K?
There are no specific documents needed, but the following information is required on Form 1099-K:
- Payer information,
- payee information,
- payment information, and
- PSE transaction information.
If this information is missing from a 1099-K that you’ve received, you should contact the vendor who sent you the form.
Are There Secret Deductions That Can be Taken on Form 1099-K?
You can report 1099-K payments as income on Schedule C of your tax return, which covers profits and losses for sole proprietor businesses.
Part II of Schedule C gives you the opportunity to deduct expenses that are referred to as business deductions, such as product costs, the portion of your phone and internet bills that is utilized for business, travel, possibly your home office, and other expenses.
Do I Need to File Form 1099-K?
Yes, if you meet the criteria imposed by the IRS if the gross payments to you for goods and services are over $5,000 in 2024, you are required to file Form 1099-K.
How Do I Prepare Form 1099-K?
You can find the instructions for filing Form 1099-K on the IRS website. The instructions that the IRS provides can be overwhelming and it may be difficult to know if you’re actually required to file Form 1099-K. Cleer Tax can help determine who should file the form and help walk you through completing the form.
How Long Does it Usually Take to Prepare Form 1099-K?
If you stay on top of your bookkeeping throughout the year, then preparing Form 1099-K should be a relatively quick process. However, it can take several hours or days even to collect the information needed to complete a 1099-K if you haven’t tracked expenses throughout the year.
What are Common Errors when Completing Form 1099-K?
Although the 1099-L is a short form, it is not uncommon to make errors. Some of the common errors include incorrect:
- Money amounts
- Codes
- Checkboxes
- Taxpayer Identification Number (TIN)
- Payee name
What if I File Form 1099-K Late?
Generally, the IRS will charge a penalty if you fail to file your Form 1099-K on time and cannot show any reasonable cause for the failure to file. In addition, you could be imposed with an additional penalty charge if you fail to provide copies of the form to payees on time.
Can Cleer Tax Help File Form 1099-K?
Yes, Cleer Tax can help with everything from bookkeeping to ensuring 1099-K expenses are tracked accurately to helping guide you through completing the 1099-K itself. Sign up for our Tax Prep or Bookkeeping services, or contact us with any questions you may have.
