Hey awesome people!
It’s tax time and everyone tends to ask me the same question/statement each year, which is “what’s your tax ID so I can send you a 1099?”, so I created this page to direct everyone to so I’m not spending unnecessary time explaining tax reporting procedure over email or IM.
So in case there’s any question about 1099s and ensuring that your consulting and service fees are deductible, this page is to help explain tax reporting procedures.
I use payment processors, and receive a 1099k directly from them. Issuing me a 1099-MISC is unnecessary and overstates my income.
I process 1/16 of my sales through an online platform called Etsy, which is a payment processor, and the rest through Selz (also a payment processor). Because I process over $20k and 200 sales each year on both Etsy and Selz, I receive a 1099-K directly from them. If you review your bank statement, you’ll actually see that all payments you have made for services and downloads were direct to Etsy or Selz, my processors.
Back in 2011, the IRS changed the way that credit card and third-party payment processor transactions would be reported. No longer will these types of payments be reported by the individual businesses on form 1099-MISC. They made this change to ensure that all income from both hobby and business storefronts were properly reported and taxed.
Therefore, issuing me an additional 1099-MISC would be over-reporting my income (which is not good!). So please do not issue me an additional 1099-MISC for income that has already been reported on my 1099-K.
Now – if you had paid me cash, check, via ACH bank draft, THEN you would issue me a 1099-MISC. But because your payment was made through one of my processors and they issue me a 1099-K directly from all sales, a 1099-MISC would be redundant, overstating, and unnecessary.
Be sure to advise your tax professional of the method of payment direct to Etsy and/or Selz, and provide them with a receipt (located in your registered account and email confirmation of your order), and deduct the business fees using that means.
Here is the email I receive from Etsy each year:
More info from the IRS on 1099-k’s:
Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. 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
What does my Form 1099-K report to me?
A Form 1099-K includes the gross amount of all reportable payment transactions. You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction is defined as a payment card transaction or a third party network transaction.
- Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.
- Third party network transaction means any transaction that is settled through a third party payment network, but only after the total amount of such transactions exceeds $20,000 and the aggregate number of such transactions exceeds 200.
The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.
NOTE: The minimum reporting thresholds of greater than $20,000 and more than 200 transactions apply only to payments settled through a third-party network; there is no threshold for payment card transactions.