top of page
Search

Understanding Form 1099-K: What Business Owners Need to Know This Year

Updated: 10 minutes ago




If you accept payments through platforms like Stripe, Square, PayPal, Venmo, Etsy, Amazon, or Shopify, you may receive a Form 1099-K this year. Even if you’ve seen it before, the rules and IRS enforcement around 1099-K reporting continue to evolve—making it an important topic to understand early in the year.


What Is Form 1099-K?

Form 1099-K, Payment Card and Third Party Network Transactions, reports gross payments processed on your behalf by payment platforms. This includes:

  • Credit and debit card payments

  • Online and mobile app payments

  • Digital wallet transactions


The key word here is gross—this amount is reported before deducting fees, refunds, chargebacks, sales tax, or expenses.


Who Receives a 1099-K?

You may receive a 1099-K if you accepted payments through a third-party processor, even if:

  • You are a sole proprietor or side-hustler

  • Your business is part-time

  • You didn’t transfer money to your bank account

  • Some payments were later refunded


The IRS uses the 1099-K to cross-check income reported on your tax return, so it’s important that the numbers reconcile properly.


Why 1099-K Causes Confusion (and IRS Notices)

Many taxpayers are surprised—or alarmed—when the 1099-K amount is much higher than their actual profit. Common reasons include:

  • Platform fees not deducted

  • Customer refunds still included

  • Sales tax collected on behalf of states

  • Transfers between personal accounts

  • Reimbursements or non-income transactions


Without proper bookkeeping, the IRS may assume the full 1099-K amount is taxable income, which can trigger notices or audits.


What You Should Do When You Receive a 1099-K

Here are a few best practices we recommend:

  1. Do not ignore it

    Even if the form looks incorrect, it must be addressed on your tax return.

  2. Reconcile to your books

    Your reported income should match your actual sales—not just the 1099-K total.

  3. Track fees, refunds, and chargebacks

    These are legitimate deductions that reduce taxable income.

  4. Separate personal and business transactions

    Mixing accounts is one of the biggest causes of reporting issues.

  5. Keep platform statements

    Monthly and annual summaries are essential support if the IRS asks questions.


Common Misconception: “If I Got a 1099-K, I Owe Tax on That Amount”

Not necessarily.


You owe tax on your net taxable income, not the gross amount reported on the form.


However, the IRS does expect the 1099-K to be properly reflected somewhere on your tax return. Accurate reporting is the difference between a smooth filing process and an unexpected IRS notice.


How We Help Our Clients

At LightUp Taxes, we help clients:

  • Reconcile 1099-K forms to their financial records

  • Ensure income is reported accurately—without overpaying tax

  • Identify missed deductions related to platform fees, refunds, and chargebacks

  • Respond to IRS notices tied to information reporting




If you need help reporting a 1099-K—or would like guidance on your overall tax situation—we’re here to help.  Addressing this early can save you time, money, and unnecessary stress. Book a free discovery call to speak with one of our experienced CPAs

and get clarity before filing.






 
 
 

Comments

bottom of page