What do I do with a 1099-K received for business income?

by | May 28, 2025 | Business Taxes, Income & Revenue

Here’s what HIVE AI had to say about “What do I do with a 1099-K received for business income?”:

When you receive a Form 1099-K for your business income, you need to properly report this information on your tax return. Form 1099-K reports payment card and third-party network transactions processed on your behalf during the tax year.

Understanding Your Form 1099-K

Form 1099-K shows the gross or total amount of payments you received through payment card transactions (credit/debit cards) and third-party network transactions (like PayPal, Stripe, Etsy, or Amazon payments). It’s important to understand that:

How to Report 1099-K Income on Your Tax Return

If you’re a business owner or self-employed individual, you’ll generally report the income from your Form 1099-K on Schedule C (Profit or Loss From Business):

  • Include in Gross Receipts: Taxpayers are required to include the total amount of receipts, including those reported on Form 1099-K, on the gross receipts line of their income tax return. IRS IRM 21.3.6 Forms and Information Requests This means you should include the amount from your 1099-K in your total gross receipts on Schedule C.
  • Example: Joe Brown, a sole proprietor doing business as Brown’s Hotel, accepts lodging payments from customers using debit and credit cards. In January, credit card companies will issue Joe Brown, doing business as Brown’s Hotel, a Form 1099-K listing the amount of merchant card payments that were collected from Brown’s customers and subsequently paid to Joe Brown. Joe Brown reports the gross receipts, including the amounts from any Form 1099-K on Schedule C, Form 1040, U.S. Individual Income Tax Return. IRS IRM 21.3.6 Forms and Information Requests
  • Reconcile with Your Records: The amount on your 1099-K should be reconciled with your business records. If there are discrepancies, you’ll need to be able to explain them if questioned by the IRS.

Adjustments to Gross Receipts

The 1099-K reports gross payments, but you may need to make adjustments for:

  • Returns and Allowances: Taxpayers are instructed to report any cash or credit refund given to a customer on Part I, line 2, “Returns and allowances”, of the Schedule C. Pursuant to Part I, line 3 of the Schedule C, the amount reported on line 2 offsets the amount reported on line 1, “Gross receipts or sales”. Dawson U.S. Tax Court Opinions: Yohannes Teka Lakew & Seble Bete This means if you issued refunds to customers, you can report these as returns and allowances to reduce your gross receipts.
  • Fees and Expenses: Payment processing fees, platform fees, and other business expenses should be deducted as business expenses on the appropriate lines of Schedule C.
  • Cost of Goods Sold: If you sell products, you can deduct the cost of goods sold on Schedule C.

Important Considerations

  • Burden of Proof: The IRS’ determinations set forth in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving that the determination is in error. Dawson U.S. Tax Court Opinions: Yohannes Teka Lakew & Seble Bete This means you need to keep good records to support your income and expense claims.
  • Reporting All Income: According to federal law, all income is subject to taxes unless specifically excluded by tax legislation. Taxpayers must report all earnings derived from the sale of goods or services, regardless of whether they receive a Form 1099-K. IRS – Publication 5951 (sp): IRS Form 1099-K MYTHS vs FACTS (Spanish Version) Even if you don’t receive a 1099-K, you’re still required to report all your business income.
  • Cash Receipts: Form 1099-K filings may result in taxpayers reporting payment card amounts in their gross receipts, but they may not include all of the cash and checks. Certain businesses are cash intensive. Depending on the type of business, there may be substantial cash receipts in addition to the reportable payment card transactions. IRS IRM 4.1.5 Case Building, Classification, Storage and Delivery Make sure you’re reporting all income, including cash payments not captured on the 1099-K.
  • Recordkeeping: Good recordkeeping is key. Be sure to keep good records because it helps when it’s time to file a tax return. It’s a good idea to keep business and personal transactions separate to make it easier to figure out what a taxpayer owes. IRS Newsroom – IR-2024-45 – Tax Time Guide 2024: What to know before completing a tax return

What If the 1099-K Is Incorrect?

If you believe the information on your Form 1099-K is incorrect:

  • Contact the payment settlement entity (PSE) that issued the form to request a correction.
  • If they won’t issue a correction, you should still report the correct amount of income on your tax return.
  • For details on what to do if a taxpayer gets a Form 1099-K in error or the information on their form is incorrect, visit IRS.gov/1099k or find frequently asked questions at Form 1099-K FAQs. IRS Newsroom – IR-2024-45 – Tax Time Guide 2024: What to know before completing a tax return

What If You Received a 1099-K for Personal Transactions?

Taxpayers shouldn’t receive a Form 1099-K for personal payments, including money received as a gift and for repayment of shared expenses. That money isn’t taxable. To prevent getting an inaccurate Form 1099-K, note those payments as “personal,” if possible. IRS Newsroom – IR-2024-45 – Tax Time Guide 2024: What to know before completing a tax return

If you received a 1099-K that includes personal, non-taxable transactions:

Documentation to Support Your 1099-K Income Reporting

When reporting income from a 1099-K, you should maintain the following documentation:

If you received Forms 1099-MISC, 1099-NEC or 1099-K for the income reported, provide copies. Provide copies of records to support the business income reported for any income you received not included on a Form 1099. Check all boxes that apply: Business/Personal bank account statements with business income highlighted, Accounting records (e.g., QuickBooks, Peachtree), Electronic payment records (e.g., Apple Pay, PayPal, Zelle, Cash App), Logbooks/Ledgers, Invoices/Receipts issued to customers for goods and services, Other. IRS – Form 11652: Questionnaire and Supporting Documentation Form 1040 Schedule C (Profit or Loss from Business)

Similarly, for business expenses:

Provide copies of records to support the business expenses reported. Check all boxes that apply: Invoices/Receipts received from suppliers for goods and services purchased, Rental Contracts, Business insurance contracts, Electronic payment records (e.g., Apple Pay, PayPal, Zelle, Cash App) with expenses highlighted, Mileage log and receipts for actual car/truck expenses, Bank/Credit card statements with expenses highlighted. IRS – Form 11652: Questionnaire and Supporting Documentation Form 1040 Schedule C (Profit or Loss from Business)

Conclusion

Receiving a Form 1099-K for your business income is part of the IRS’s effort to improve tax compliance for businesses that accept payment cards or payments through third-party networks. By properly reporting this income and maintaining good records, you can ensure compliance with tax laws while accurately reporting your business income and expenses.

Remember that it’s the profit from these activities that’s taxable income. IRS Newsroom – IR-2024-45 – Tax Time Guide 2024: What to know before completing a tax return The Form 1099-K reports gross payments, but you’re taxed on your net profit after allowable business deductions.

For more information about what to do with your Form 1099-K, go to www.irs.gov/businesses/what-to-do-with-form-1099-k. If the Form 1099-K is related to your business, see Pub. 334 for more information. If the Form 1099-K is related to your work as part of the gig economy, go to www.irs.gov/GigEconomy. See the separate instructions for your income tax return for using the information reported on this form. IRS – Form 1099-K: Payment Card and Third Party Network Transactions