What is happening with the 1099-K?
Comments
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I started this discussion because there has been a lot of talk in the news and among taxpayers concerning the Form 1099-K. The form was approved in 2008 and first came out in 2012. Essentially it came out as a way for the IRS to get a report on electronic business transactions for a specific taxpayer who did business at an online 3rd party vendor.
At first the threshold to send the form was pretty high. As I recall it was sent when you had more than 200 transactions, at a particular 3rd party vendor, or more than $20,000 of transactions. So, it didn't impact a lot of people doing a small number or dollar amount of sales.
To understand the 1099-K, keep in mind that it is an informational type of form. Basically, the form is a reminder to the recipient that this amount was reported to the IRS. On copy B For Payee, the instructions state, "This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if taxable income results from this transaction and the IRS determines that it has not been reported."
In 2023, the threshold to send the form has been lowered to $600 of business transactions regardless of the quantity of transactions. See this article from the IRS, "Understanding Your Form 1099-K". Pay attention to the section on "Who Gets Form 1099-K" since that is what most people will be asking questions about.
If you get a 1099-K this year (or in the future), make sure that amount is reported on your tax return. It may be that you keep accurate accounting records and have already figured those amounts in your gross receipts or rents. You might get a 1099-K if you did business with: Uber, eBay, AirBnB, Lyft, Etsy and other online vendors you start a business with.
If you have other comments, experiences or questions, please comment. I am sure that the 1099-K and how the IRS will use it will continue to evolve.
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The $600 threshhold only applies to business transactions, not personal. Issuers of the 1099-K are supposed to separate out personal transactions, like selling a couch on Facebook, from business transactions, such as retail sales business selling used furniture.
Keeping good records will help if there is a dispute between you and the issuer because the IRS can't correct a 1099-K if the information is wrong. Only the issuer can make a correction. Being able to clearly show what transactions are personal and what transactions are for business, is important. If your 1099-K has incorrect information, contact the issuer immediately to request a corrected form.
Some good news however, is that in May 2023, a few members of Congress introduced the "Red Tape Reduction Act" to raise the $600 threshold to $10,000. But unless that is made law, the $600 threshhold remains.
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What is the proof that a transaction is personal vs a business transaction, like on ebay for example? If ebay sends me a 1099-K, what would I send them to show these are personal transaction and not part of a business to request a revised 1099-K?
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Hi Jeb,
That is a great question. I don't have the perfect answer for you, since eBay is going to send you a 1099-K for sales on a specific account. I doubt that eBay would send you any sort of corrected 1099-K, since they have millions of sellers and would be reluctant to do this regardless of the evidence you sent them.
However, there is a solution in FreeTaxUSA 2023 that makes reporting these mixed personal and business sales simple.
- On the income menu select 1099-K Income and select the box for the company you did sales on. For eBay, select Other Online Store.
- On the next page, answer Yes to Personal and Business.
- Answer YES that any of your personal transactions were for a loss. Enter the amount that were personal.
This will correctly report the income on Schedule 1, Part I, line z as income and Part II, line z as a adjustment to income, essentially making this a wash.
Then report the portion for business on your Schedule C.
For 2022, it isn't as automatic and requires some manual entries of your own for Other Income and Other Adjustments.
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Great news on the Form 1099-K reporting requirements for calendar year 2023.
On November 21, 2023 the IRS announced "a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023."
This means you will not have a reporting requirement for Form 1099-K on your 2023 tax return, unless you receive over $20,000 and have more than 200 transactions in 2023. However, you are still required to report business income of $400 or greater regardless if you receive a form or not.
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hallelujah
