How to File 1099-K Unique Situation

angels2025oc
angels2025oc Member Posts: 2 Newcomer
in Filing my taxes

I have a side hustle where I have three types of sales. All speculative sales.

  1. Sales I made, purchased inventory and have been paid.
  2. Sales I made, purchased inventory, haven’t been paid yet.
  3. Sales I made, haven’t purchased inventory and haven’t been paid.

Will I be taxed on all of these sales or just the first category or just the first and and second category?

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Best Answer

  • CoryF
    CoryF FreeTaxUSA Agent Posts: 124
    Answer ✓

    This is a good question to ask.

    Most side hustle businesses use the Cash basis for accounting. Meaning when you receive cash (paid) or spend cash, you report it on a Schedule C. This would mean that scenario 1 is what is needed to be recorded on a Schedule C. However, there is a way to record purchases for inventory reporting to include scenario 2 on your 2024 taxes.

    In FreeTaxUSA, navigate to Business Income (Schedule C)

    1. On the page "Tell us about your business (name)" you would answer the question, Yes, "Does your business have inventory or cost of goods sold?". On the same page keep the Cash accounting method selected before saving and continuing.
    2. You would enter the amount from the sales that were paid on the page "Tell us about your income (name)" after selecting that you did receive a 1099-K.
    3. The next screen will ask you about "Inventory and Cost of Goods Sold (name)". Start by entering $0 for beginning inventory (if you are starting this business new in 2024). Your purchases will include the amounts from scenario 1 and 2. To complete the page for the items for which you have not been paid, you will report the amount on Ending Inventory Value. The ending inventory amount will rollover to the next year for taxes, if you continue using FreeTaxUSA next year.
    4. The next screen will show Common Expenses where you can report other administrative or operational expenses for your Side Hustle business.
    5. If the total expenses, including cost of goods sold (inventory purchases), exceeds your paid sales, you may be reporting a loss for which you will not be taxed.
    6. If your paid sales (scenario 1) exceeds all of your expenses (steps 3 and 4), you will be taxed on the profit.

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Answers

  • angels2025oc
    angels2025oc Member Posts: 2 Newcomer
    https://community.freetaxusa.com/discussion/comment/3858#Comment_3858

    Thank you very much for this detailed response. I think the 1099-K will include all sales, will that be a problem or should I just go off of my detailed book keeping?

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  • CoryF
    CoryF FreeTaxUSA Agent Posts: 124

    Thank you for the follow up question.

    You will need to claim all the sales from the 1099-K as that is a form that is sent to you and to the IRS. Meaning, my explanation may not totally apply if the issuer of the 1099-K claims that you made the sales in scenario 1 and 2 (even though you haven't constructively received it, or gotten paid). You can still claim all of the Cost of Goods sold, and in this case, you would report a $0 ending inventory. You can return back to this thread when you receive the 1099-K and ask more questions, if you want.

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