So this past year, while doing a bunch of bank bonuses that required spending $XYZ to qualify for the bonus, I figured it couldn’t hurt to put the spend through my google pay account. So I was using my debit cards to pay myself. There was no point accumulation, just minimum spend qualifications. So it was a sort of low end manufactured spending. I don’t know the threshold for google, but apparently I met it so they sent me a 1099-K. So now I have a document that looks like I have a small sole proprietorship that took in several thousand dollars in payments when it was just me moving money from one account to another. What’s the best way of handling this on my taxes? I was thinking of a schedule C with everything on the 1099-K as revenue and then a very similar number as expenses under COGS or something like that. Thoughts?
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I haven’t been in your position to think super hard about it, but that seems like a very reasonable approach. Hopefully some of our other posters who’ve gotten 1099-K’s in the past for similar situations can comment on how they handled them and if there were any issues.
I don’t know about the 1099K, but filing a Schedule C may also subject you to self employment tax, which is basically a deduction for Social Security taxes. Someone more knowledgeable may know better.
From some random link from googling incorrect 1099s
Disputing an incorrect 1099
If the issuer of an erroneous 1099 refuses to correct its mistake, you’ll need to include an explanation on your tax return and attach documentation in support of your assertion. Let’s say you receive a 1099 showing you were paid $20,000 from a given company, when in reality you were only paid $15,000. You can’t just list that $15,000 on your tax return and call it a day, because the IRS will notice the discrepancy and most likely go after you for the difference. At the same time, you shouldn’t simply pay taxes on an extra $5,000 you never received.
Instead, what you’ll need to do is list the $15,000 but attach a statement explaining the overpayment. That statement should include documentation in support of your claim, such as copies of canceled checks and invoices. You should also include proof that you attempted to reach the issuer, and that the issuer either failed to respond or refused to comply.
While the latter steps clearly require a bit of extra legwork, you’ll need to take them if you want to avoid getting audited or improperly taxed. Unfortunately, when it comes to 1099s, mistakes do happen, but if you don’t address them, you’ll be the one who ultimately loses out.
I guess that’s the “correct” way to deal with it. Your idea seems like the path of least resistance, except that claiming $X,000 business revenue could open the door for numerous other potential issues if you’re really unlucky.
This doesn’t really apply to my situation because the 1099-K isn’t erroneous. I can’t reach out to google to tell them they put the wrong number on the form. I did “receive” the several thousand in payments.
I’m actually a tax professional, so I’m aware of all this sort of stuff. But this is a very unique situation as most taxpayers aren’t in the bank bonus/manufactured spending game. It’s actually better to talk to people that hang out on this sort of message board than a tax pro message board when it comes to something like this.
I actually already have a legit Sched C sole proprietorship on my taxes. But I am debating between running this 1099-K through that, or doing a completely separate business and calling it “Meed18’s Payment Processing” or something like that.
I’m thinking the safest bet is running it through my business because I didn’t receive any other 1099s for it, so all I would really be doing is increasing my revenue by a few thousand and my expenses by a few thousand, but my net business income will not change due to the 1099-K and it would stay mostly the same from year to year as well.
I have the records to show that the money going in and out of google pay was my own money and can just play dumb with the IRS saying I was using google pay to transfer money with no idea it would end up like this if they ever came knocking. I feel like it would draw less scrutiny to have it run through an already profitable Schedule C than to create a brand new schedule C for 1 year that just breaks even.
I’m also posting here partly so this can be a lesson to all of you that ever wondered about setting up a system where your “business” processes your minimum spend payments. Don’t do it and be glad you never did it.
But the nature of the payments is being misrepresented by being included on a 1099 at all. It’s your own money being returned to you.
Claiming a quasi-cash advance off your own credit card as “business revenue” is clearly not correct, even if the 1099 makes reporting it that way the most likely option to not raise questions.
Doing this also makes your credit card reward/bonus taxable income, since you are deducting the “expense” that generated the bonus.
Arguably the bonus is taxable regardless, since the alternative means there was no bona fide purchase from a counterparty to absorb the rebate. But that’s off on a tangent we need not get into.
This is where I f’d up. When I set up this google pay account, I did it as a “business” so that the debit card payments that ran through it would look like legit spend to the banks. Google sending me a 1099-K for it is completely legitimate. The IRS rules say payment processors don’t have to send a 1099-K to you if they process less than $20k in transactions for you, but the processors can choose to set their own threshold. There is nothing erroneous about the 1099-K itself. I did receive the “payments” they are reporting.
I know, which is why I plan on putting a corresponding expense to net it out to 0.
They were all bank bonuses, not credit card bonuses. So they were already taxable and I am already reporting them via the 1099-INTs the banks send me and my own records. Thankfully this is not a can of worms I need to open.
You only f’ed up in terms of keeping it simple and straightforward. Google sending the 1099 is legit for the intended purpose of it’s service, but you were not using the service for it’s intended purpose. Taxablility is based on your circumstances, not Googles. And the receipt of your own money quite clearly should not be included anywhere on your tax return.
Reporting the revenue then zeroing it out with expenses is merely dealing with the 1099 in a way you hope will keep it from ever being mentioned again. It may be your best option, but it still isnt “correct” either.
When it comes down to it, I’m just not sure which is better to have to explain - that 1099 money was not reportable revenue, or that you were your own business’s only customer . But in general, I’d agree that the latter creates a return that is more likely to never require any further explanation.
Ahh, now I understand and I completely agree.
I doubt it is worth it to try and convince google that I shouldn’t get a 1099-K because I was exploiting their system that allowed me to process debit card transactions with zero fee ( ). But I do see your point.
But yeah, like you said, what it comes down to is, is it a good idea to have Schedule C income that is a few thousand lower than what was sent on a 1099-K and not even enter the 1099-K on my taxes because it isn’t real revenue? And then possibly have to deal with the IRS looking for an explanation? Or is it easier to just boost my revenue (and correspondingly boost my expenses) a little bit in the hopes that it doesn’t raise any eyebrows? I’m leaning toward the latter.
I also don’t know if it’s helpful or harmful, but my business has an EIN and my google pay 1099-K was sent to my SS#. I think because it is a sole proprietorship, it probably doesn’t matter that much.
Only if net profit is above $400 . In OP’s case it’d be $0 and not a concern.
Won’t they expect that amount reflected in your gross receipts?
I wouldn’t “fudge” your real business just to make it look like it includes these amounts. I dunno what I’d do between not reporting it (and preparing to respond to their almost certain inquiry) or adding the full amount to revenue and COGS. It’s a real doozy. But probably a good idea to hold on to all the debit card receipts.
Another idea – do these debit transactions resemble a capital contribution? Not sure how it could be reported, but it sounds like a reasonable excuse to me.
If your non 1099-K revenue exceeds your 1099-K revenue, not reporting the 1099-K may be fine. The IRS computer just adds up the 1099’s to make sure they are all accounted for. You said your business did not receive other 1099’s so you just need to see if your real business revenue exceeds that of the 1099’s generated.