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We bill all our clients through credit cards, and the card processor sends us a form 1099-K report of all the income received.

But at the same time, many clients insist on also sending us a 1099-MISC for the work billed to that individual client.

So by reporting both the 1099-K income and the 1099-MISC income, we're reporting a fraction of the income twice.

So to get the correct numbers, we'd have to either not report the 1099-MISC contributions, or incorrectly report the 1099-K contributions by subtracting out the 1099-MISC subset. Neither of these options seems legally correct.

What's the best way to proceed here that will not lead to undue complication?

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1 Answer 1

up vote 6 down vote accepted

Your clients should not send you 1099-MISC if they paid with a credit card.

You can refer them to this text in the instructions for the form 1099-MISC:

Payments made with a credit card or payment card and certain other types of payments, including third party network transactions, must be reported on Form 1099-K by the payment settlement entity under section 6050W and are not subject to reporting on Form 1099-MISC. See the separate Instructions for Form 1099-K.

By sending out the 1099-MISC, your clients are essentially saying that they paid you directly (check or cash) in addition to the payment they made with a credit card (which will be reported on 1099-K). In case of an audit, you'll have trouble convincing the IRS that it didn't happen. I suggest asking the clients not to do this to you, since it may cost you significant amounts to fight the IRS later on.

In any case, you report on your tax return what you really got, not what the 1099 says. If you have two 1099's covering the same income - there's no legal obligation to report the income twice. You do not have to pay twice the tax just because you have stupid clients. But you may have troubles explaining it to the IRS, especially if you're dealing with cash in your business.

If you want to avoid matching issues, consider reporting all the 1099s, and then subtracting the duplicates and attaching a statement (the software will do it automatically when you add the description in the miscellaneous item) about what it is.

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