Upcoming Changes for Digital Wallets and Marketplaces
Recently, there have been changes regarding the 1099-K form and who is required to report these gains. There are some good news for many in the immediate future, but the requirements for the 2024 tax season is clarified and the talks about transitioning to a $600 reporting requirement are still planned in the long-term. I will be breaking down the news to their core components.
Tax Year 2023
Firstly, for the current season that is about to begin for Tax Year 2023, the IRS has dropped the requirement for businesses to furnish a 1099-K to their users with the new tax law (That is to say, the $600 reporting requirement). This doesn't mean there won't taxpayers receiving a 1099-K, because the prior law in effect is still being enforced. Who will receive a 1099-K? Taxpayers who receive over $20,000 and had more than 200 transactions in 2023. Meaning, if you fall below those thresholds, you shouldn't worry about reporting any transactions. Who are required to issue 1099-K? Any third-party payment platforms and online marketplaces. (Eg. Paypal, Venmo, CashApp, Stripe, Amazon Marketplace, Ebay, Shopify and etc).
Tax Year 2024
The IRS had the following to say, "We spent many months gathering feedback from third party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements," said IRS Commissioner Danny Werfel. "Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It's clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area."
In a short answer, the changes to bring the reporting requirements down to if $600 dollars worth of transactions occurred is going to happen, it is only being "transitioned". Even though we can breath a sigh of relief for 2023, we can't expect the same for 2024 as long as the law is in place. The changes will start in 2024, taxpayers you receive over $5,000 of transactions through one of the platforms mentioned above. Those who will receive and who will furbish these statements will be the same as the group mentioned above for 2023.
What Sort of Income is Reported?
Per IRS statements, "Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.
However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales."
The following received items are NOT reported:
General gifts (Eg. Birthday, Holiday, Graduation and etc)
Shared carpooling
Shared meals
Someone paying for your bills
The following sold items ARE reported:
Furniture
Household items
Clothing
Services provided
Casual reselling
The amounts gained (even if it results in 0 tax liability or sold at a loss) will need to be reported and in your 1040 income report. These items mentioned above are just some examples and are not a full comprehensive list, there may be situations where some of these items overlap one or another. Have a conversation with your tax expert to acquire a better understanding how this could impact your day-to-day activities.
What Should I Do Now? And Does This Matter?
Keep receipts for anything and everything that you buy and sell. Put it in a box or binder for the purpose of maintaining a proper documentation of everything, and when are reporting your income to the IRS, you have the paperwork in place to justify your gains or losses. This would be an important adjustment for many, since before, the habit was to sell furniture on Ebay and it would usually be at a loss. Even though thousands would have been earned through Ebay, after accounting the loss, it would result in a zero tax liability scenario.
For the average US Citizen and Resident, understanding these new requirements would significantly help in reporting your income properly. Millions of new 1099-K's that weren't previously issued due to the higher reporting requirement could become a norm. The danger is if you claim these earnings and account it as a loss on your tax return, but do not have the receipts to corroborate your deductions, in the event of an audit you may find yourself in hot waters with the IRS and owing penalties on top of a tax due amount. Ultimately, it is up to you as the taxpayer to make sure all of your accounting is properly documented.
What Can Glass Tax Services Offer?
By using us as your go to accountant and tax preparer, we are able to take the extra steps making sure your benefits are maxed out in your tax return. Our solutions stem from consistent updates with the tax industry, and partnering with groups such as Protection Plus (Now offering protection for 1120-S, 1120 and 1065 Returns). In the end of the day, your most valuable asset will come back to you in the form of time. Leave the grunt of the research and work with people you can rely on, offering solutions to your everyday needs. Click on Get Started Now to schedule a free interview with us and see how we can best fit as a partner alongside with you.
