What the form reports
The form generally shows the gross amount of payments processed for you in the year, before fees, refunds and chargebacks are taken out. It may be broken down by month. It can also include sales tax collected, tips and shipping charged. It does not show what you actually received in your bank.
Rather not file them yourself? 1099-NEC preparation and filing.
A payer could also report an amount for personal reimbursements or transfers between friends, which are not business income.
Gather the comparison data
Download the processor's annual report and monthly statements, your sales reports from your accounting system or point-of-sale, and the bank statements showing payouts. Put the 1099-K gross at the top of a worksheet. Add the lines you need to reconcile it to your recorded revenue.
If you use more than one processor, repeat the process for each form.
Common reconciling items
Typical differences include refunds and chargebacks that the form does not subtract, processing fees that were netted out of deposits, sales tax and tips included in the gross, sales that were paid in cash or check and so never appear on the form, and timing differences around December and January. Each can be listed with a dollar amount.
The result is a bridge from the form total to the revenue on your return. Keep it in your tax file.
When the form seems wrong
If the form includes transactions that are not yours, or amounts that you cannot trace, contact the issuer and ask for a corrected form. Keep records of the request. Do not ignore it, because the IRS receives a copy and will compare it to your return. If a corrected form is not issued, discuss with your preparer how to report the difference with an explanation.
Personal sales of items sold at a loss, such as used household goods, should be separated from business income.
Make next year easier
Record gross sales and fees separately all year. Tag the payment method for each sale and keep processor reports with your monthly files. A reconciliation done monthly takes minutes, while one done in March from scratch takes hours.
Ask your preparer whether any state also requires reporting by processors in your situation.
A worksheet layout that works
Use five lines. The first is the gross total on the form. The second subtracts refunds and chargebacks not reflected in it. The third subtracts sales tax and tips included in the gross. The fourth adds sales received by other means such as checks and cash. The fifth shows the revenue recorded in your books, and any remaining gap is listed as unexplained and chased down.
Initial and date the worksheet and file it with the form. If the IRS ever sends a mismatch letter, this page is half of your answer.
Common questions
Do I report the 1099-K amount as my income?
Not automatically. You report your actual income, and the form is one source of information to reconcile. Ask your preparer how it should appear.
What if I get a form for something I did not sell?
Contact the issuer promptly and keep a record. See your preparer if it is not corrected.
Can my bookkeeper do this?
Yes, bookkeepers often prepare the reconciliation for the preparer.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.
