Form 1099-K: Your Questions, Answered

With some uncertainty around 1099-K changes for 2023 taxes, including who gets a form 1099-K, now is the best time for beauty and wellness business owners to learn what to expect this tax season and how they can best prepare to make their tax filing go as smoothly as possible.

We want to make things as easy as possible for our members, which is why we invited “The Beauty CPA” Kenesha Coleman, Certified Tax Coach and IRS Enrolled Agent to join our recent webinar, Preparing for Tax Season and Managing Your 1099-K Like a Boss. More than 1,000 beauty and wellness pros joined the webinar for an opportunity to learn more about the upcoming tax changes and new 1099-K rules that will affect them.

We collected the six most frequently asked questions on that webinar and answered them here in more detail so you can march into the 2022/3 tax season armed with all the information and knowledge you need!

1. What Is a 1099-K? What are the 1099-K Requirements for 2023?

A 1099-K is a tax form that payment app providers, such as Venmo and PayPal, and platforms like GlossGenius are required to report and share with customers who meet certain transaction thresholds in a given calendar year.

In the past, business owners and independent contractors only received 1099s if they had at least 200 transactions that totaled or exceeded $20,000 and this threshold is not changing for the 2023 tax year. For 2023, the IRS had announced a new $600 threshold for 1099-K reporting for business owners or independent contractors, but in November 2023, they announced they would delay this change, and the reporting threshold will remain the same as in 2022.

It’s important to note that only business owners and independent contractors will receive a 1099. Employees (whether full or part time) will receive a W-2 from their employer.

Free Workbook: Navigating 1099 Taxes as a Beauty Professional

If you met the threshold in 2023, you should receive your 1099-K form by the end of January 2024. If you believe you qualified for a 1099-K in 2023 and haven’t received yours by early February 2024, reach out to your payment processor for support.

Additionally, if you met the threshold across more than one payment app in 2023, you can expect to receive multiple 1099-K forms, and you need to include all of them in your filing.

“You’ve got to keep track of what [systems] you’ve been using. I have a fair amount of beauty clients, and if you’re using more than one [system] you have to look at every single one,” says Kenesha. “But hopefully you’re just using GlossGenius so you only have one to worry about!”

2. What Should I Do with My Form 1099-K?

The first thing you should do, says Kenesha, is look over all of the information on your form(s) to make sure it’s accurate. This includes everything from your name and identification number, to the dollar amount you processed in sales in 2023. (Remember: This amount will exclude cash transactions, tips, discounts, etc.). The figures should be correct for each month – check these numbers against your own books and records to make sure.

If your 1099-K form has the wrong information, reach out to the payment processor that issued your form (e.g. GlossGenius) and they will work with you to send a corrected form as soon as possible.

Even if all of your information is correct, you’re not done yet! Kenesha says you’ll need to adjust the profits and expenses on your 1099-K form to include cash transactions (these will not be reported by your payment processor), tips, discounts, refunds, etc., and any tax deductions you have on eligible expenses (e.g. supplies, inventory, uniforms, etc.). You’ll make these adjustments on your tax return to reduce your tax bill.

3. What Does “Gross Adjusted for Fees” Mean?

Your 1099-K does not have any adjustments included, so every number on your 1099-K will be “gross,” meaning it is the original price the client was charged. On your return, you’ll need to adjust your gross payments for any tips, discounts, refunds, or fees. 

“If you look and you see $50K on your 1099, do not just slap $50K on your tax return,” says Kenesha. “At that point you’re going to be over-reporting income and overpaying in tax because you haven’t taken into account any fees, refunds, or discounts.”

For instance, if you charge $100 for a service, and your payment processor has a 3.5% fee on all card transactions, your client will pay you $103.50, but that amount adjusted for fees would be $100. By reporting these adjustments, you’ll only pay income tax on what you actually made ($100), rather than the total amount you received ($103.50).

Note: Some states do not allow charging credit card convenience fees to clients but they are still a deductible business expense for you.

All payment processors charge a fee for their service, but not all payment processors are created equal. Do your research to find a payment processor that charges ultra-low fees, with convenient client payment options and same-business-day bank transfers.

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4. What Is Bookkeeping? What Should I Use to Keep Track of My Books?

Simply put, bookkeeping is tracking all money coming in and all money going out of your business.

Any sales or purchases you make – whether they’re for services rendered or products purchased by clients, as well as any legitimate purchases you make for the business – should be accounted for.

If you have been using GlossGenius for bookkeeping all year, provide your tax accountant with your 1099-K and the following reports from GlossGenius:

  • Sales
  • Retail Sales
  • Inventory 
  • Transaction Detail
  • Expenses.

Depending on the laws in your state around sales tax, you may wish to share your sales tax report for 2022 as well. If you want to go above and beyond, share all of your 2023 reports with your tax accountant.

Related: 8 Reports You Can Easily Run with GlossGenius

If you have not used a bookkeeping tool, or have only been using one for part of the year, you’ll need to manually check your 1099-K form(s) against your records and make adjustments on your tax return with whatever records you have available. Applicable adjustments include cash transactions, fees, discounts, refunds, etc.

5. Is Cash Reported on My 1099-K? Do I Need to Adjust for Cash Transactions?

Cash transactions are not reported on your 1099-K, and you will need to adjust your earnings and expenses on your tax return to reflect any cash tips or payments you received. Consult with a tax professional for more information on this.

The beauty and wellness industries are increasingly moving away from accepting cash. Save yourself the headache come tax time with GlossGenius:

  • Process every payment via credit card or digital wallet quickly and safely
  • Track all your business expenses in the app – snap and save a picture of receipts as proof
  • Access a variety of detailed reports, including sales and expenses

Infographic: 5 Ways to Take Payments with GlossGenius

6. What Can I Deduct from My Taxes?

The IRS allows business owners and independent contractors to deduct qualified expenses in order to reduce the amount of taxable income you received – and pay less in taxes!

Some examples of qualifying business expenses include:

  • Rent
  • Retail products/inventory
  • Salon furniture and decor
  • Uniforms (regular work clothes don’t qualify)
  • Related supplies (e.g. scissors, shampoos, chairs, syringes, etc.)
  • Licensing and license renewals
  • Carpeting, mats, and other flooring

As of the 2023 tax year, only 80% of the cost of qualified expenses can be deducted from your taxes. If you have any questions about which expenses qualify for deduction, you can contact the IRS or a qualified tax professional.

Disclaimer: Please consult your accountant, CPA, or advisor about your personal tax situation. GlossGenius cannot provide tax advice.

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