1099-K for LLC and S Corp Owners

As a small business owner, you’re responsible for reporting your business activity to the Internal Revenue Service (IRS) using various federal tax forms. One form that you may receive is Form 1099-K. It outlines the payments you receive from specific sources.

Understanding how to handle this form is important to ensure proper filing of your business tax return. Here’s what you need to know if you receive this form.

What is Form 1099-K?

Form 1099-K is a tax form that reports payments you or your company received from certain sources. Specifically, it details payments from two sources:

• Payment card networks, including credit, debit, or gift cards
• Online payments, like those from payment apps or online marketplaces

Payment providers must file Form 1099-K with the IRS and send a copy to anyone who receives qualifying payments. This form doesn’t include reimbursements of personal expenses or gifts, but it does include payments made to businesses for goods and services. 

Examples of vendors or companies that may issue you a 1099-K are payment card networks like PayPal, Square or Stripe, or online payment apps or marketplaces like Etsy or Ebay.

Who receives a 1099-K?

Any person or business receiving payment transactions from a credit card, debit card, or gift card network or earning more than the $20,000 and more than 200 in transactions reporting threshold from mobile apps or an online marketplace in a single tax year receives a 1099-K. 

The IRS is continuously updating tax law and filing requirements and has suggested changes impacting Form 1099-K in the future. In future tax years, the reporting threshold will drop to $5,000 before eventually phasing into a $600 reporting threshold. 

The rules around 1099-K forms will change, so checking the IRS website each year can ensure you have the latest information about possible updates. 

These thresholds can include payments from sources such as:

• Peer-to-peer payment processors
• Online marketplaces, retailer sites, or auction websites
• Car-sharing or ride-hailing platforms
• Real estate marketplaces
• Ticket sale websites
• Crowdfunding platforms
• A third-party settlement organization, like a freelance marketplace

In short, if your business accepts credit and debit card payments, does business online, or uses third-party network transaction apps like PayPal or Venmo, you can expect to receive Form 1099-K each year for that taxable income.

Reporting 1099-K income

When you receive Form 1099-K,  you should first review and ensure it contains complete and accurate information, as you would with any tax document. Check the gross payment amount listed and ensure it aligns with your company’s records.

Note that you’ll receive multiple 1099-Ks if you received income from various sources – and the sum of all payments received will be reported as revenue on your business tax return – Form 1120-S.

The amounts reported on Form 1099-K are considered gross receipts or gross revenue, meaning they only reflect income received. As you prepare your business tax return, you will deduct your business expenses to offset your income.

To maintain clean and separate data for tax purposes, avoid commingling business and personal activity in certain apps or accounts. If you use the same payment app account for your company and personal transactions, your 1099-K will likely list personal transactions that it shouldn’t, complicating your tax filing process.

1099-K vs. other 1099s

Form 1099-K is just one of many types of 1099s. There are over twenty variations of the 1099 forms listed on the IRS website. Most are considered informational returns that cover different personal and business income types.

Here are a few of the most common types of 1099 Forms you may encounter, regardless of your business structure:

Form 1099-NEC

This reports non-employee compensation. You’ll use this form if you hire a contractor and need to send them compensation records. You may need to file a Schedule C if you are a single-member LLC or sole proprietorship that receives this form.

Form 1099-MISC

Miscellaneous income will appear on this form. Businesses that need to report payments to suppliers commonly use this form. The IRS has directed companies not to issue Form 1099-MISC if the income included in that 1099-MISC will also be reported on a 1099-K. In that scenario, you should only send Form 1099-K.

Form 1099-DIV

This reports income from dividends and other distributions. It is for payments from things like quarterly earnings from stocks your company owns.

Form 1099-INT

Income from interest appears on this form. Filers will use this form if their business earned interest from financial products like savings accounts, CDs, bonds, or bank bonuses.

Deadlines for 1099-Ks

While the dates may fluctuate due to holidays and weekends, payment networks typically have a deadline of January 31st to send Form 1099-K to eligible payees. If you’re going to receive the form, it should arrive in your mailbox or email account by early February.

When it comes to tax filing deadlines to submit these forms to the IRS, they are as follows:

• Filed by paper: February 28th of the calendar year following the transactions
• Filed online: April 1st of the calendar year following the transactions

It can be helpful for taxpayers to enlist the help of a CPA to help with tax preparation. Whether you are an independent contractor, sole proprietor, or another business entity, having a professional’s assistance can ensure you meet deadlines, fulfill reporting requirements, and complete all the necessary tax forms.

The bottom line

Form 1099-K is a common form for business owners to receive. If you process payments through any payment settlement entity, you’ll likely get one or more of these forms each year.

Understanding how to use the 1099-K Form and what you can deduct from the reported payments will help you file your company’s taxes properly.