This is a contributed article by C.W. Kimple. It is for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax advisors.
It’s time to file your 2022 tax return! Here’s a snapshot of how to report your sales and earnings from Dumpling on your tax return.
What to look for
Business owners will receive an End-of-Year Tax Summary via e-mail from Dumpling (see below).
You’ll also receive a Form 1099-K if you exceeded both $20,000 in total sales AND 200 transactions in 2022. Dumpling will mail your Form 1099-K to your address by January 31, 2023.
Even if you don’t receive a Form 1099-K from Dumpling, you are still responsible for appropriately reporting your 2022 sales and earnings to the IRS.
What is a Form 1099-K?
Form 1099-K is the document Dumpling uses to report to the IRS how much money you earned in 2022 if you met the earnings and transaction thresholds mentioned above. Here’s what the form looks like:
What is Dumpling’s End-of-Year Tax Summary?
Below is an example of a Dumpling End-of-Year Tax Summary. Note that the Total Invoice amount on the End-of-Year Tax Summary matches Box 1a of the 1099-K.
What do I do with the 1099-K and End-of-Year Tax Summary?
If you’re an individual, sole proprietor or single-member LLC, then you’ll likely report your income and expenses on your Form 1040, Schedule C. Below are several sections of Schedule C where your income and expenses will be recorded. From your End-of-Year Tax Summary, notice that the Total Invoices amount goes on Line 1. The Groceries and Fees amount goes on Part IV, Line 27a. Before you add additional deductions, net earnings will also match Line 31.
Schedule C - Continued
Now that we’ve discussed how Dumpling reports your earnings and some of your expenses on Form 1099-K and your End-of-Year Tax Summary, and taken a quick glance at where on a Schedule C you’ll put your earning and expenses, let’s take a look at how you’ll enter all this information into your tax software program.
How to enter information into your tax software program
Here’s an example of where to record your information in TurboTax.
Step 1: Find the Income & Expenses section. Click on edit.
Step 2: Enter “1099-K” in the “Type of income” field. Enter the amount from your Form 1099-K, Box 1a, in the “Amount” field:
Does your 1099-K amount seem pretty high?
Don’t worry! The dollar amount that appears on your 1099-K isn’t the money you’ll pay taxes on. Let’s talk about the expenses you’ll also report on your tax return.
From the End-of-Year Tax Summary, the Groceries and Fees amount of $14,562.88 and the Instant Payout Fees of $1.00 are important expenses to report on your tax return. In this example, your total expenses are $14,562.88 (rounded up to $14,563) + $1.00 = $14,564. Subtracting that amount from $24,232 of income results in a profit of $9,668.
Is the $9,668 the amount you pay taxes on? Not necessarily. There are still quite a few other expenses you may be able to report on your tax return.
Additional expenses you can report on your tax return
Money you spent related to your delivery business can also be deducted on your tax return. Here are some of the more common expenses of Dumpling business owners:
Dumpling monthly subscription fee (Pro or Tycoon level)
Personal protective equipment
Marketing expenses such as Facebook advertising, business cards, car magnets
Supplies such as reusable bags, insulated bags, coolers, carts
Membership fees for stores such as Costco and Sam’s Club
Road and bridge tolls
Cell phone and data plan expenses
In TurboTax, the expenses section is directly underneath the income section:
Click on “Add expenses for this work” and add all the expense deductions for your business.
Important: Don’t forget to add the Groceries and Fees expense amount from your End-of-Year Tax Summary. In TurboTax, this expense is listed as “Other miscellaneous expenses.”
Let’s talk about mileage
One of the largest expenses you may have for your delivery business is miles driven in your vehicle. Here’s what you need to know about tracking how far you’ve driven:
For every mile you drove for your business between January 1, 2022 and June 30, 2022, you get to deduct 58.5 cents from your gross income. You can deduct 62.5 cents for every mile you drove for your business between July 1, 2022 and December 31, 2022.
On your tax return, you must report total business miles driven and total overall miles driven. As an example, let’s assume on January 1, 2022 your odometer says 1,000 miles and on December 31, 2021 your odometer reading is 6,000. Let’s also assume you drove 4,000 miles while making deliveries in 2021. On your tax return, you’ll need to report that you drove 5,000 miles overall (6,000 minus 1,000) and 4,000 miles for your business.
YOU MUST KEEP A REAL-TIME LOG. Every time you drive your vehicle for business purposes, you must write down the date, total miles driven and the purpose of the drive. Your driving activity must be recorded as it happens throughout the year. The IRS does not allow you to “recreate” a log of your driving activity after-the-fact.
How to Handle Dumpling Adjustments
Finally, let’s discuss positive and negative adjustments that are made to your Dumpling invoices.
Positive adjustments – These will be reflected in the total invoices amount on the 1099-K and End-of-Year Tax Summary you receive from Dumpling. It’s your responsibility to track what, if any, of the positive adjustments reflect additional expenses or costs. For example, farmer’s market items you purchased on your personal card may be deductible. You would report these additional costs as an expense on your tax return.
Negative adjustments – If you’re making a negative adjustment, such as a discount, this has already reduced the total sales dollar amount reported on the 1099-K and End-of-Year Tax Summary. This is therefore not something you need to be concerned with for tax return purposes.
Where do all these numbers come from?
Here’s an example of what a typical Dumpling order looks like on a mobile device:
(NOTE: The total of these expenses that appear on Dumpling invoices is what shows up as “Groceries and Fees” on your End-of-Year Tax Summary.)
The profit of $32.31 is the amount that Dumpling deposits into your bank account.
ALERT - New for Next Year’s Tax Return!
As mentioned in the beginning of this article, you’ll receive a Form 1099-K from Dumpling (which the IRS will receive a copy of) for your 2022 tax return if you exceeded both $20,000 in total sales AND 200 transactions in 2022.
New tax legislation, however, will dramatically lower the 1099-K reporting threshold. Next year for your 2023 tax return, you’ll receive a Form 1099-K from Dumpling if you exceed $600 in total sales.
This new, lower threshold of $600 was supposed to go into effect for the 2022 tax year, but the IRS postponed the implementation of this new reporting requirement until you file your 2023 tax return in early 2024.
If you have never before received a Form 1099-K, you should anticipate receiving this form for your 2023 tax return if your 2023 sales through Dumpling exceed $600.
Disclaimer: The information contained in this Guide is not offered as legal or tax advice. The U.S. federal income tax discussion included in this Guide is for general information purposes only and is not a complete analysis or discussion of all potential tax consequences that may be relevant to a particular individual. In light of the foregoing, each individual should consult with and seek advice from such individual’s own tax advisor with respect to the tax consequences discussed herein. Any information contained in this Guide is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the U.S. Internal Revenue Code of 1986, as amended.