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I do affiliate marketing for a living. The commission payments get transferred into my business PayPal account and the various businesses also send me a 1099. Normally I would just list the 1099s on my tax return, but this affiliate revenue is already taxed when I enter the numbers off Form 1099-K that PayPal sent.

Now the IRS is saying that I failed to record these other 1099s that I received, which is technically correct. But I didn't do so because I didn't want my affiliate commissions to be taxed twice.

If the money is already accounted for on the 1099-K, then why do I also need to note the individual 1099s that I get from these marketing companies? Again, the goal is to avoid double taxation and make sure I'm doing everything correct.

Definition of 1099-K

"Form 1099-K, Payment Card and Third Party Network Transactions, is used to report transactions that are made via a payment settlement entities. Simply put, if you use a service to process credit or debit card transactions, that service is a payment settlement entity, and the amount of those types of transactions for the year should be reported on the Form 1099-K."

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    "But I didn't do so because I didn't want my affiliate commissions to be taxed twice." Talk to an accountant before you knowingly commit tax fraud. Anyway, if you're a sole proprietorship, why should your revenue be taxed twice?
    – RonJohn
    Commented Jan 14, 2020 at 4:19
  • Is the 1099-K more than the total of all the 1099-MISC?
    – TTT
    Commented Jan 14, 2020 at 4:42
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    @RonJohn - this isn't tax fraud. The same income is showing up on two different 1099 forms.
    – TTT
    Commented Jan 14, 2020 at 4:46
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    @RonJohn - our definition of fraud must differ. In this case, the 1099-MISC are redundant at best, and more likely shouldn't have been sent in the first place. (There is no intention to deceive the IRS, or reduce one's taxable income, which is what I would consider required for "tax fraud".)
    – TTT
    Commented Jan 14, 2020 at 5:37
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    This: ericnisall.com/what-to-do-wrongly-receive-1099-misc
    – TTT
    Commented Jan 14, 2020 at 5:51

1 Answer 1

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Ideally the customer(s) wouldn't have submitted a 1099-MISC since it was paid via PayPal, and ideally when they make a mistake like this they would correct it. Unfortunately, the IRS doesn't know the situation, they just know that you didn't report all of the 1099 income on your tax return which they have copies of.

If you can't get the customer(s) to send a corrected 1099-MISC, you can record the 1099-MISC income and also enter expenses on your Schedule C (Part V - Other Expenses) equal to the double-counted amount. Make it clear in your entry for each of these expenses that they offset a redundant 1099-MISC. This satisfies the need to show all of the reported income as well as not resulting in double taxation. Not all income will necessarily show up on the PayPal 1099-K (I believe mobile payments and 'send money to family/friends' don't get reported on the 1099-K), so make sure your offsetting entry is for the proper amount and keep your documentation clear so if audited the IRS can clearly see what happened. I'd also probably document your request for a corrected 1099-MISC.

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