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Author Topic: IRS auditing me - bit by double reporting of PayPal 1099K and agency 1099 MISCs  (Read 984 times)

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« on: October 22, 2019, 21:01 »
+1
For years, I have reported all my agency 1099 MISC forms on my taxes, and have ignored the 1099K I get from PayPal, since reporting it would be double reporting my microstock income.

This has worked fine for years, until now. The IRS just contacted me stating that I underreported income which is now due, with a hefty penalty.

I called and talked to two different people at the IRS, who gave me two different answers on how to proceed:
1. First guy told me he sees this frequently and I should file an amended return, ignoring the 1099 MISC forms from the agencies and just report the 1099K from PayPal
2. Second guy told me I need to get letters from all the agencies stating that they actually sent the funds to PayPal and not me. I think my chances of getting these are slim to none.

I'm inclined to take the easiest route first, faxing in a letter explaining the situation, showing the 1099 MISCs alongside the 1099K, and a spreadsheet of all my PayPal transactions from the agencies which add up to the amounts on the 1099 MISC forms and the grand total on the 1099K.

How does everyone else report microstock income on taxes?  Anyone get called out by the IRS and have to correct their info?
« Last Edit: October 22, 2019, 21:03 by stockmarketer »


« Reply #1 on: October 22, 2019, 23:44 »
+1
Surely you can just work off funds deposited to your bank from Paypal. Those bank statements are fairly black and white proof of income.

« Reply #2 on: October 23, 2019, 02:37 »
0
Surely you can just work off funds deposited to your bank from Paypal. Those bank statements are fairly black and white proof of income.

I'm not even from US, taking a guess here, but that's what IRS already knows, that he got income from PayPal, he needs to connect that PayPal income to Agencies. Bank/ bank account only shows that income came from PayPal, not from agencies.

You can create a simple custom report on PayPal page that shows that that exact income came from agencies, but I guess that needs to be at least singed or verified by someone from PayPal to have any lawful meaning. Or pursue PayPal, instead of every single agency, to give you a more serious kind of that report.

Brasilnut

  • Author Brutally Honest Guide to Microstock & Blog

« Reply #3 on: October 23, 2019, 03:03 »
0
There are copyright lawyers that specialise in this sort of issue. They would also have contacts with specialist accountants. I came across one such based in the US a long time ago but cannot recall. If anybody has such a contact...

Likely much better than trying to get anything out of us. Very easy for us to try to give advice but the responsibility remains with you!

« Reply #4 on: October 23, 2019, 06:09 »
0
Really just wondering how other US based microstockers handle this.  Do you report your 1099 MISCs from the agencies?  Your 1099K from PayPal?  Both (and somehow subtract one from the other so you are not taxed twice on the same income)? 

Anyone been audited, or find out how the IRS prefers us to show this income?

« Reply #5 on: October 23, 2019, 07:02 »
0
This wont help your current issue but...   

My understanding is that:  Paypal's 1099K are issued when there are 20K in earnings and 200 transactions in a calendar year.  I'm careful to keep the transaction number below 200. 

steheap

  • Author of best selling "Get Started in Stock"

« Reply #6 on: October 23, 2019, 08:49 »
0
I report the 1099Misc's plus I report what an agency has paid me if they don't give me a 1099. I haven't had a 1099K from Paypal, so I'll keep my fingers crossed that I don't!

Good job the earnings from stock are leveling off and falling otherwise this could be a bigger issue! ::)

Steve

« Reply #7 on: October 23, 2019, 09:05 »
0
Per the IRS, You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:

from payment card transactions (e.g., debit, credit or stored-value cards), and/or
in settlement of third-party payment network transactions above the minimum reporting thresholds of:
   -  gross payments that exceed $20,000, AND
   -  more than 200 such transactions

(Just in case you're freaking out about never receiving a 1099K)

steheap

  • Author of best selling "Get Started in Stock"

« Reply #8 on: October 23, 2019, 10:04 »
0
Thanks for that clarification! So only requesting earnings from the smaller agencies every few months makes sense to keep those transactions to a minimum. Some of the agencies pay out automatically at pretty low levels. I'll have to see if I can stop that from occuring.

Steve

angelawaye

  • Eat, Sleep, Keyword. Repeat

« Reply #9 on: October 23, 2019, 10:25 »
0
I had this happen one year but haven't gotten an audit. I reported all my MISC 1099 and put the left over paypal payments in the "other income" section of my schedule C. I did not report the 1099-K but all the numbers add up to equal the 1099 K. Make sure to keep all your statements in order so you can show everything adds up and matches.

So sorry this is happening though.


angelawaye

  • Eat, Sleep, Keyword. Repeat

« Reply #10 on: October 23, 2019, 10:32 »
0
https://steemit.com/dlive/@jerrybanfield/f379acd0-2920-11e8-a5a6-dd5b02004a6a

This guy adds the "double reported incomes" as an "expense" on his schedule C.

"In other words, I put the exact PayPal "1099-K" income, I put the exact "1099-Miscellaneous" income, and then all I do in my expenses is I add in a line, essentially an expense back to that client for the double payment, because the client only actually paid me once, and yet the same income is reported twice.

Therefore, I put in an expense back to that client to cancel out the double income reporting. Then, if there are questions it's easy for me to demonstrate in my "1099-K" this income was reported here and in my "1099-Miscellaneous" the client reported it there.

I was only actually paid once, so this is an expense that cancels out the double payment, which reflects the truth. The truth of one single payment sent for this amount without reducing the income reported to the IRS."

Uncle Pete

  • Great Place by a Great Lake - My Home Port
« Reply #11 on: October 23, 2019, 11:35 »
0
Per the IRS, You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:

from payment card transactions (e.g., debit, credit or stored-value cards), and/or
in settlement of third-party payment network transactions above the minimum reporting thresholds of:
   -  gross payments that exceed $20,000, AND
   -  more than 200 such transactions

(Just in case you're freaking out about never receiving a 1099K)

Anyone with less than $20,000 AND more than 200 transactions. So it doesn't matter if you have 1,000 transactions, if you didn't make $20,000 which doesn't meet the trigger for a 1099

To answer how I handle it, itemized schedule C income, I have an accountant, she's got the brains.

Yes I've been audited, the IRS was actually very nice, my mileage was disallowed, I paid $5,000 with penalty and interest. Note: in my state, if you are audited by the IRS, you are required by law to notify the state. The state told me that after I hadn't informed them. They weren't very nice... But the IRS was an actual, in person audit, not a letter saying, please explain something that was questioned.

https://steemit.com/dlive/@jerrybanfield/f379acd0-2920-11e8-a5a6-dd5b02004a6a

This guy adds the "double reported incomes" as an "expense" on his schedule C.

"In other words, I put the exact PayPal "1099-K" income, I put the exact "1099-Miscellaneous" income, and then all I do in my expenses is I add in a line, essentially an expense back to that client for the double payment, because the client only actually paid me once, and yet the same income is reported twice.

Therefore, I put in an expense back to that client to cancel out the double income reporting. Then, if there are questions it's easy for me to demonstrate in my "1099-K" this income was reported here and in my "1099-Miscellaneous" the client reported it there.

I was only actually paid once, so this is an expense that cancels out the double payment, which reflects the truth. The truth of one single payment sent for this amount without reducing the income reported to the IRS."

Smooth!

« Reply #12 on: October 23, 2019, 12:46 »
0
Your mileage was disallowed? For why, if you don't mind me asking.

J

Uncle Pete

  • Great Place by a Great Lake - My Home Port
« Reply #13 on: October 23, 2019, 13:16 »
+1
Your mileage was disallowed? For why, if you don't mind me asking.

J

Bad Records.  :P Self employed, sales rep. for a company, traveling from factory to factory, or calling on distributors. Not detailed enough. I had a bunch of dates and miles, didn't log where to, who, exactly, and from, and basically, my fault. I'm sure there's a note on my IRS file now.

I saw the top page when the state audited me, a copy of a letter when I hand wrote, the year they lost my return. Yeah, on top, negative, as I asked how come they couldn't find my return, when they could come to my office and spend three days, looking through sales tax exemptions from my customers, which was a waste of time. They made it a point to sit that on top for the auditor! A little revenge on their part maybe?

Now for photo, I have a log sheet, I start, mileage, all gas stops, includes motel, and I keep all the receipts! Each event is a sheet on it's own for the weekend. I don't include or claim food or anything else except travel expenses and lodging. Well yes, if I buy a memory card or something, that's in there.

I don't deduct most other photo shoots, I do deduct and depreciate equipment, with date purchased and cost. If I sell, I have to record that. Another database.

I don't claim my "home office" too much of a flag for further investigation. Nice as it's a buffer if I do get audited. What I'm saying is, I actually under claim, in case I make a mistake, so I have some padding on my side. But the ability to claim expenses or some of them for photography, because of Microstock income, is nice.

Bottom line and I'm sure Stockmarketer fits this, keep good records. His income and earning reports here, showed he was quite detailed about tracking work, sales and commissions. Shouldn't be a problem as it's just a double reporting error.


« Reply #14 on: October 28, 2019, 09:23 »
+1
This happened to me once, and it was a fairly easy fix of just having to show the duplicate income. I just matched up the earnings for each agency with the reportings in the 1099s and 1099k and the IRS cleared it.

As others have mentioned, try to stay below the threshold of PayPal's 1099k. I started using Skrill a lot more after my run-in the the IRS over this.


 

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