Kelsey's Form 1099-K includes sales tax that she collected on behalf of the state government. How should Kelsey report this on her return?

Kelsey's gross receipts should match the Form 1099-K. Because she is including the sales tax in her income, she should deduct the tax paid as an expense.

Kelsey's gross receipts should be reduced by the sales tax. She can also deduct the tax paid as an expense.

Kelsey should include the sales tax received in her gross receipts, and claim the sales tax paid as a reduction to income on Schedule C (Form 1040), line 2, returns and allowances.

Kelsey must include the sales tax in her income, but the tax paid is not deductible