PayPal 1099-K: The Complete Guide for Sellers and Freelancers

Christian is a copywriter from Portland, Oregon that specializes in fiscal writing. He has published books, and loves to help freelancer contractors save money on their taxes. Sarah is a staff writer at Keeper Tax and has her enroll Agent license with the IRS. Her workplace has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has closely a decade of populace accounting have, and has worked with clients in a wide range of industries, including petroleum and gasoline, fabricate, real estate, sweeping and retail, finance, and ecommerce. Sarah has extensive have offering strategic tax plan at the state of matter and federal tied. During her time in industry, she handled tax returns for C Corps, S corporation, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents ( NAEA ) and maintains her continuing education requirements by completing over 30 hours of tax train every year. In her spare time, she is a give kat ma and enjoys hike, baking, and overwatering her houseplants. In this guide, we ’ ll walk you through who receives a PayPal 1099-K, what to do with it, and how to file your self-employment taxes. good news : trust on a chopine like PayPal doesn ’ triiodothyronine change all that much. The main thing to know is that you might receive a 1099-K mannequin from them, documenting the earnings you ’ ve received through the platform.

As you get a manage on filing self-employment taxes, you might be wondering, “ How does using a third-party payment processor affect my taxes ? ” Whether you ’ re an eBay seller, earning income through your own web site, or juggling multiple clients as a freelancer, there ’ s a good chance you ’ ll get paid using PayPal .

What is a PayPal 1099-K form?

1099-K is an income compendious that payment processors like PayPal send to anyone who receives at least $ 600 in business transactions. These days, that ’ s reasonably common for spear workers, autonomous contractors, and people who run small businesses. For example, pretend you run an on-line vintage clothe store that relies on PayPal to process purchases. If you earn $ 650 this year, PayPal will send both you and the IRS the same 1099-K shape documenting those transactions. note : Before 2022, form 1099-K worked slightly differently. It was entirely issued to people who earned at least $ 20,000 and logged at least 200 for goods or services in a calendar class. { write_off_block }

Does the 1099-K include personal PayPal transactions?

No, your PayPal 1099-K shouldn ’ t include any money you got from personal situations, like your roommate paying you back for greaser Tuesday. So don ’ t worry — you won ’ thyroxine induce taxed on those kinds of payments. At the end of the sidereal day, your PayPal 1099-K shape will only include transactions that are either :

  • 💼 Processed through a business or merchant account
  • 🛍️ Processed through a personal account and marked “goods and services.”

Any “ friends and class ” payments you receive won ’ thyroxine show up on your PayPal 1099-K. ( so fair make sure your roommate international relations and security network ’ t unintentionally telling PayPal that you sold them a greaser ! ) How to set up a PayPal business account You can avoid any potential confusion by keeping your personal account just for friends and family transactions. How ? By setting up a business explanation for any commercial transactions.. fortunately, starting a PayPal business account is ace simple :

  1. Log in to your account
  2. Click on the gear ⚙️ icon to visit your settings
  3. Select “Upgrade to Business account”
  4. PayPal will want to ask a few questions about your business, starting with its “type” — think sole proprietorship, partnership, or corporation
  5. You’ll be asked whether you want to upgrade your personal account to a business one, or whether you want to create a business account with a different email. (Note: You can’t have a personal and business account with the same email, it has to be one or the other) 
  6. Enter your business information

Voila ! Your PayPal business account is ready to go .

When does PayPal send the 1099-K?

PayPal will mail the phase to you by January 31st. After this date, you can besides entree the shape directly from your PayPal account. authoritative : To ensure your form arrives on clock time and with all the correct information, double-check that your account has the correct :

  • 🏠 Address
  • 📛 Business name
  • 🧮 TIN (Taxpayer Identification Number)

If you don ’ deoxythymidine monophosphate receive your form by January 31st, contact PayPal ’ s customer support .

How to file your PayPal 1099 taxes

once you ’ ve got all your 1099 forms at hand, you ’ re fix to file your self-employment taxes. here ’ s a flying breakdown of the basic steps — including tips for saving money on your taxes !

1. Use your 1099 forms to determine your gross income

As we ’ ve mentioned, you ’ ll get a 1099-K from PayPal if you earn at least $ 600 from them. You ’ ll need to refer to this shape, along with :

  • 🧾 Any 1099-Ks you get from other payment apps, credit cards, debit cards, or gift cards
  • 🧾 Any 1099-NECs (formerly 1099-MISCs) you got from companies or clients that paid you at least $600 directly — through electronic fund transfer, direct deposit, cash, or checks

Let ’ s say you ’ re a mercenary writer who earned $ 1,000 through PayPal transactions and another $ 1,000 through direct deposit from a single node. You ’ ll get a 1099-K from PayPal and a 1099-NEC from your node. ( Learn more about the differences between these two forms here ! ) These forms will help you determine your gross income for the year. You ’ ll besides have to add up any income that you didn ’ metric ton get either a 1099-K or a 1099-NEC for — for example, from clients that paid you less than $ 600 all year. ( If you don ’ t have invoices you can reference to double-check that income, just look through your bank accounts for the deposits. )

2. Make a list of your write-offs

All freelancers and occupation owners know that the total of taxes you pay is based on your income. however, your taxable income international relations and security network ’ t necessarily the like as your gross income. In fact, it ’ s credibly quite a bite lower. If you spent money on your business, you can deduct a part of those expenses from your crude income for a lower taxable income. That way, you can keep as much of your hard-earned PayPal income as possible. ( And of course, these write-offs apply to all your income — not fair what you earn through PayPal ! )

Some of the most common write-offs for freelancers or merchants include : Consider using Keeper Tax to make the most of money-saving write-offs ! Keeper Tax links directly to your recognition card and bank accounts and mechanically scans your purchases for business expenses you can deduct from your taxes. This makes for hassle-free organize of all your digital receipts, ensuring you don ’ triiodothyronine miss out on any eligible write-offs. { upsell_block }

3. Fill out Schedule C

Schedule C is the form you use to report your write-offs and determine your taxable income. Check out our in-depth article on Schedule C for a fully guide to completing this imprint !

4. Pay taxes on time

Most people only have to file their taxes once a year, in April. however, if you ’ re a freelance person who ’ south expected to owe the IRS more than $ 1,000 come tax fourth dimension, then you ’ ll have to file quarterly. here ’ second when these are typically due for each one-fourth :

  • 🌸 Quarter 1 – April 15th
  • ☀️ Quarter 2 – June 15th
  • 🍂 Quarter 3 – September 15th
  • ❄️ Quarter 4 – January 15th

If you underpay, you might wind up owing penalties on your quarterlies. fortunately, you can turn to our free quarterly tax calculator for a authentic appraisal of how much you ’ ll owe. Keep in mind : You ’ re not allowed to write off your business expenses on your quarterly taxes. You have to wait until you file your annual tax return. What happens if you don’t file your taxes on time? If you file your taxes late by even a day, the penalty is 5 % of your original tax bill and increases each calendar month up to 25 %. ( Keep in mind, “ filing ” good means submitting the paperwork, even if you don ’ thymine send the IRS any money ! ) If you owe the IRS and pay your charge former, then you face a failure-to-pay penalty of 0.5 %. This besides builds up the longer you don ’ triiodothyronine pay. If you do fall behind on your taxes, consider e-filing them. That ’ s the fastest way to get everything submitted and stop those penalties in their tracks. Keeper Tax is an IRS-approved e-filer that can help you file your taxes quickly, even if the deadline has already passed. { filing_upsell_block } You can even do it right on your telephone ! The app will guide you through the process, helping you get your taxes squared away in no time .

How to avoid double reporting of PayPal income

double report is when some of your income is incidentally reported to the IRS twice. This could land you with a higher tax bill .

How does double reporting of PayPal income happen?

Say you ’ re a mercenary writer who wrote for three clients in a class. Each of them pays you $ 5,000 through PayPal. That ’ south well over the $ 600 brink, then PayPal sends you a 1099-K showing the $ 15,000 you earned. Remember : Before the law changed in 2022, the threshold for receiving a 1099-K form was $ 20,000, which had to be spread over at least 200 transactions. As clients get used to the new rules, they might occasionally slip up and do things the old way. If one of your clients is confused and calm working off of the pre-2022 guidelines, they could end up mistakenly issuing a 1099-NEC — even though PayPal ’ s 1099-K already accounts for the money they paid you. Your actual income was only $ 15,000. But because of the double coverage, the IRS now thinks you made $ 15,000, plus another $ 5,000 — and your taxes will be higher as a consequence. { email_capture }

How do you prevent double reporting?

childlike ! Just reach out to your clients and make surely they ’ rhenium aware of the 1099-K changes. If they weren ’ triiodothyronine in the loop, they ’ ll probably be glad to have a tax form off their plate. Make certain you reach out early in the new year : most forms go out at the end of January or beginning of February.

What do you do if a client accidentally double reports?

If a client unintentionally double reports before you get to them, don ’ deoxythymidine monophosphate sweat ! Fill out your Schedule C with your actual sum income — in this case, $ 15,000 — and precisely be ready to explain the mixup if the IRS asks questions. You haven ’ deoxythymidine monophosphate done anything wrong, so you ultimately won ’ metric ton be penalized. If you want to incorporate PayPal into your business, but are concerned it ’ ll complicate your taxes, rest assured : all you need to worry about is the 1099-K they send you. equally long as you make sure PayPal has all of your correct information and keep clients in the loop, you ’ ll be in the clear .

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Category : Finance

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