I used my Square account to sell Girl Scout cookies. How do I avoid receiving a 2022 1099-K?

[rtweaver]

I used my Square account to sell Girl Scout cookies with sales totaling $729.00. How do I avoid receiving a 2022 1009-K Form?

[Minion]

In the US, the state where your taxpayer information is associated will determine your qualification for a Form 1099-K. In most states, accounts meeting both of the following criteria qualify for a Form 1099-K and must be reported to the IRS by Square:

1. More than $20,000 in gross sales from goods or services in the calendar year

2. and more than 200 transactions in the calendar year.

You can find State Specific 1099-K filings here as well.

[rtweaver]

I wish those criteria still applied for the 2022 tax year, but, alas, they don't...

New Form 1099-K Qualifications for the 2022 Tax Year: Beginning January 1, 2022, accounts with $600 or more in gross sales from goods or services in the 2022 tax year will qualify for a Form 1099-K and must be reported to the IRS by Square.

...that's why I am trying to find a way to avoid having the sales counted against my gross income.

[Minion]

Ahh whoops, completely missed the big 2022 part.  

But just because you receive a 1099-K from Square, doesn't mean that it will need to classified as taxable income.  As long as you accurately report that the amount brought in for (GS Cookies) and spent on GS cookies I don't see a problem with.  An accountant should be able to handle that situation relatively easily. 

[rtweaver]

Ah. Thanks. I did not realize how a 1099-K works since I've never received one before. I incorrectly assumed they worked just like 1099-Rs, 1099-DIV, etc., where the amount is always (in my case) added to your gross income. What you are saying is that they work differently. The sales total can be offset by the cost of goods sold.

[Minion]

I'm honestly not entirely sure if they work the same as the other 1099's.  It will most likely still need to be added to income since it will be reported, but there may/should be a way an accountant can offset this to reflect that it wasn't "true" income. 

I would definitely seek out guidance from a CPA. 

On a plus note, you do at least you will have plenty of time to get this figured out

[Donnie-M]

@rtweaver @Minion A 1099-k is just like what minion said, it shows that money was sent to you through a third party payment provider.  So if you want to take credit cards, nowadays, you cannot get around it.  The good thing that is also true, you can show that all of the money went to the girl scouts.

A 1099-k is an information based form and is not necessarily income.  If you were given gifts or reimbursed through a third party payment provider it would not be income.  This is for you and your tax advisor to classify properly, but I think you would be fine if you make sure you have a record of the money going back to the scouts or where you paid for the cookies first, etc.

So it shouldn't count against you as income unless you classify it as income.

[rtweaver]

@Donnie-M @Minion Thanks to the both of you for helping me better understand a 1099-K. I feel a lot better than I did when I thought I might have to pay $150 of income taxes on the sales amount.