The IRS has recently released guidance for hobby enthusiasts receiving a 1099-K.
Why did I receive the 1099-K?
Per the IRS, "Form 1099-K is a report of payments you got during the year from:
- Credit, debit or stored value cards such as gift cards (payment cards)
- Payment apps or online marketplaces (third-party payment networks)
Third-party payment networks are required to file Form 1099-K with the IRS and provide a copy to you when the gross payment amount is more than $20,000. Form 1099-K should not report gifts or reimbursement of personal expenses you received from friends and family."
What if the income reported on my 1099-K shouldn't be taxed?
If you received a 1099-K in error, contact the issuer of the form immediately and request that it be corrected. Keep a copy of the original form and all correspondence with the issuer for your records. If you are unable to have your 1099-K corrected, follow the instructions below to report your 1099-K received in error.
- Federal Section
- Adjustments to Income
- Other Adjustments
- Other Adjustments Not Listed Above
- Enter the Description as 1099-K received in error
- Enter the amount that shoudl not be considered income on the 1099-K
Once you are done, you should have your 1099-K income reported as a positive and negative amount of other income. This will allow the entries to cancel each other out resulting in the income being reported, but not taxed.
How do I know if my pastime is a hobby or business?
To determine if your pastime is a hobby or business, please consider the questions, here.