1099K

roundbarn — Fri, 10 Mar 2023 19:04:06 GMT

I just noticed (and I probably should have before this!) that the gross income listed on our 1099-K includes the sales tax that we collect and pay to our state. This is NOT income. It's "pass-through" meaning we collect it and we pass it to someone else. How do I account for the difference in gross sales vs what is on the 1099-K?

Re: 1099K

TheRealChipA — Fri, 10 Mar 2023 19:27:22 GMT

Hi @roundbarn. The 1099-K does not report gross income. It reports “Gross amount of payment card/third party/network transactions.” (As quoted from the IRS instructions for form 1099-K) In other words, Square is required to report the total amount of all payments we received by processing a customer card. This is NOT the same as gross sales/income, and the IRS doesn’t expect it to be the same.

The IRS does not use this number to determine your Gross Income, as there are a lot of factors that go into that. This number is used to help the IRS determine if we are significantly underreporting income. A good example. I’ve known of merchants who tried to be sneaky and not report their cash sales to the IRS. When they see that the card processing number is VERY close to the actual gross sales, that is a red flag that something is probably not right.

Since you are filing state sales tax returns and passing that money through, the IRS expects that you will not report it as income on your annual business tax returns. They don’t expect these numbers to match exactly.

I hope that makes sense.

Regards,

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1099K

Re: 1099K