Coming out of the Thanksgiving fog yet? I think there are still a few leftovers in my fridge from Thursday’s meal that might end up in the waste bin… I’ve had my fill of leftovers.
Or maybe you chose to forego leftovers altogether and stay light for your Black Friday excursion. There were SO many deals this year.
Were you like a lot of other Redding shoppers, avoiding the madhouse in the stores and opting for online shopping? Buying online confidently is made possible by the offer of free returns. But that might not be the case for all online retailers anymore. At least 18 different companies now charge for returns of online purchases. Even Amazon will charge you if you drop off at a UPS store when a Whole Foods or other designated free drop-off spot is closer.
Just something to keep in mind with the rest of your holiday gift buying.
In the spirit of the season, the IRS has decided to give a gift to taxpayers this year. They’ve opted for another 1099K delay and some plans to phase in the ARPA lowered threshold.
Let’s take a look at that today.
How the 1099K Delay Affects Redding Taxpayers
“The only constant in life is change.” – Heraclitus
The 1099K / 600-dollar reporting requirement has been looming over us since 2021’s American Rescue Plan legislation. And it’s caused a bit of a ruckus for all of us… as well as the IRS … which is why the IRS delayed implementing it in 2022.
Now, in a fit of deja vu, the IRS has once again opted for a 1099K delay. That doesn’t mean you get out of reporting income from selling some of your tickets in your season tickets package or putting your grandmother’s collection of antique furniture up for bid online. It just means you won’t necessarily get a 1099K form from PayPal or whichever digital payment platform you use to collect payment for those items.
There’s been a lot of chatter around the 600-dollar reporting threshold. Compliance and administrative concerns over implementation continue to be heard. Experts like the National Taxpayers Union Foundation say that lowering the threshold is an unworkable option. And some Congress members agree. Even now there are some Congressional committees proposing a change to the ARPA legislative ruling.
For now, know that the 1099K delay means you won’t see forms from your online marketplace and digital payment platforms for goods unless you make over 20K through more than 200 transactions via a payment app or online marketplace.
The shift towards a lower threshold began with the American Rescue Plan, which aimed to tighten tax reporting for the gig economy and online sellers. The plan reduced the reporting threshold from 20K to a mere 600 dollars, regardless of the transaction number. This move was intended to bring more transactions into the tax net but also raised concerns about the burden on small sellers and individuals.
In response to the many concerns being raised, the IRS has proposed a phased approach. In 2024, they plan to introduce a 5K threshold for 1099K reporting. This intermediate step should help ease the transition to the eventual 600-dollar requirement, balancing the need for comprehensive income reporting with the reality you face as a taxpayer.
Remember, this reporting does not apply to personal payments. If you received 20 bucks from a friend to pay for their portion of a meal, or a little monetary birthday gift from your parents via CashApp, Venmo, or PayPal, you won’t get a 1099K. The focus of this kind of tax reporting is on transactions that generate income.
Now, if you do get a 1099K because you fall into the current 20K reporting threshold, there are some steps you can take.
- Verify the accuracy of the reported information. If there are discrepancies, contact the payment settlement entity immediately.
- Keep records of all transactions to support your tax return entries. Remember, the 1099K form reports gross payments, not net income. You may have deductions that offset this income.
- Maintain clear records of all your transactions. Distinguish between personal and business activities on these platforms, and seek guidance if you’re unsure how to categorize them.
Breathe a little easier with the 1099K delay, but also, remember that any income you make should be reported with or without a 1099K coming your way.
Whether you’re a frequent online seller or just looking to make some extra money from a little Shasta County side hustle, I’ll make sure you stay informed and prepared for any changes to the reporting threshold. As a tax professional in your corner, I’m here to help you navigate every tax law change and make sure your tax filings are accurate and stress-free.
Keeping you in the know,
Dennis Fritz