1099-K Changes Are Here: What You Need to Know
Authored by: Charlie Miracle, CPA, Financial Advisor, Member, Director of CAS
If you’ve ever sold goods or services online or through payment apps, you might be familiar with Form 1099-K. This form is important for reporting payments received from credit, debit, or gift cards, as well as transactions through online marketplaces like eBay or Amazon, and payment apps such as Venmo or Zelle. But recent changes to the 1099-K threshold have implications for individuals and businesses alike.
Changes in Threshold
Until 2024, you typically received a 1099-K if your payments exceeded $20,000 and involved 200 or more transactions in a year. However, the threshold has been significantly reduced. For 2024, it’s now set at $5,000, and it’s slated to decrease even further to $600, as per the American Rescue Plan.
What This Means for You
This means that if you receive payments totaling $5,000 or more in a year from your business activities, side hustle, or even from selling personal items, you’re likely to receive a 1099-K. It’s a shift that impacts a broader range of individuals and businesses.
Understanding Tax Implications
When it comes to taxes, it’s essential to differentiate between business income and personal sales. If the income reported on your 1099-K is associated with your business or side hustle, you should already be reporting it on your tax return.
However, if you’re selling personal assets, whether it's extra concert tickets or old items from your garage, the tax implications vary. If you sell a personal asset for less than what you paid for it, the transaction isn't taxable and the loss is not deductible. But if you sell it for more, you’re required to report the profit as taxable income.
Payments received as gifts or reimbursements from friends or family aren’t taxable and shouldn’t be reported on a 1099-K.
Preparation Tips
To navigate these changes smoothly, consider the following steps:
- Separate Business and Personal Accounts: If you have a business, maintain separate accounts for business and personal transactions. This helps ensure that gifts or reimbursements don’t get mixed up with business income on your 1099-K.
- Keep Track of Costs: If you’re selling personal items, keep meticulous records of what you paid for them. This helps determine the taxable portion of your sales accurately.
- Addressing Errors: If you receive a 1099-K in error or believe there’s a mistake, reach out to the issuing organization for a corrected form. If you don’t receive one, you may need to report the amount on your tax return and make an adjustment to indicate that the 1099-K was received in error.
Seek Guidance
The rules surrounding 1099-Ks can be complex, and if you’re uncertain about your tax obligations, consider consulting a tax professional. They can provide tailored advice based on your specific situation and help you navigate any potential issues.
Staying informed about changes to tax reporting requirements like the 1099-K threshold is crucial for individuals and businesses alike. By understanding these changes and taking proactive steps to address them, you can ensure compliance with tax laws and avoid any potential pitfalls. For more information, visit our website at cnccpa.com or give us a call at (509) 663-1661, and we’ll begin helping you, your family or your business today.
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