Schedule C and form 1099-K

[Jim]

We have a small business providing administrative support to clubs putting
on dog shows. This involves among other things collecting entry fees. Most
of the fees are sent by mail with checks made out to the club. We also
provide a means of entering online with payment made through PayPal. The
funds therefore come to us, and we write a check to the club for these
amounts. Now this year we received a form 1099-K showing these payments
coming to us with a copy going to IRS.

I'm not sure how to handle this. Instructions for Schedule C Line 1 say "For
2011, you are not required to report income received via merchant card or
third party network payers, so enter 0 on line 1a and report all income,
regardless of how it was received, on line 1b". For Line 1b, instructions
say "Enter on line 1b all gross receipts from your trade or business".

Should I include these amounts on line 1b and then try to explain why they
are not taxable income to me in Part V Other Expenses?

Jim Craig
Sierra Vista, AZ

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>

[paulthomascpa]

"Jim" <J...@invalid.com> wrote

> We have a small business providing administrative support to clubs putting
> on dog shows. This involves among other things collecting entry fees. Most
> of the fees are sent by mail with checks made out to the club. We also
> provide a means of entering online with payment made through PayPal. The
> funds therefore come to us, and we write a check to the club for these
> amounts. Now this year we received a form 1099-K showing these payments
> coming to us with a copy going to IRS.
>
> I'm not sure how to handle this. Instructions for Schedule C Line 1 say
> "For 2011, you are not required to report income received via merchant
> card or third party network payers, so enter 0 on line 1a and report all
> income, regardless of how it was received, on line 1b". For Line 1b,
> instructions say "Enter on line 1b all gross receipts from your trade or
> business".
>
> Should I include these amounts on line 1b and then try to explain why they
> are not taxable income to me in Part V Other Expenses?

They are going to be, and in fact should have been, income to your business.
And you can take, and should have been taking the payments to the clubs as
an expense. Remittances that you received and forwarded to the club for
deposit would not be your income because it just wasn't.

My rule is that if you had control of the funds, then it's reportable as
income, and the payment you made from those funds you controlled are
expenses.





--
Paul Thomas, CPA
www.paulthomascpa.com