The anniversary of 9/11 always reminds me that our lives can be changed dramatically in the span of a day. We could not have imagined on September 10 that such tragedy would strike or that so many people’s lives would be changed. It’s one of the reasons it’s so helpful to us as a nation to carve out time to remember what happened.
Now, I’d like to visit some recent decisions of our governing body on your tax situation — something I talk about regularly. It can be hard as a taxpayer to fall under the weight of new tax laws. They have a lot of impact. And the past few years have seen a bevy of them. Some simple and in your favor, but some more complicated (as many tax decisions are).
One of those: the lowering of the reporting requirement for payment networks (PayPal, Venmo, etc.). There’s been a lot of talk about this change since it passed in 2021, but many don’t realize that it wasn’t effective until this tax year (2023). The 2024 filing season will see lots of confusion and questions about 1099-K’s by people all across the country, so I want to clear up the murky waters here.
Though there are some in Washington calling for the threshold to be raised, I’d like to make sure you’re prepared no matter the outcome of that.
1099-K Reporting Requirements: Clearing Up Confusion for New York/New Jersey Metro Taxpayers
“Count the day won when, turning on its axis, this earth imposes no additional taxes.” – Franklin P. Adams
You’ve been hearing about the changes to the reporting requirements for 3rd party vendors like Venmo and PayPal for a while now. Thanks to the 2021’s American Rescue Plan, the reporting threshold dropped from 20k for 200 transactions to 600 dollars (for even a single transaction).
It was initially set to roll out for reporting on 2022 taxes, but, thanks to an overworked IRS, the government decided to push back the enforcement to the 2023 tax year… yes, that’s this year’s taxes (due in 2024).
Like a lot of other Brooklyn people, you likely use those apps for personal reasons like sending some quick cash to friends for a shared meal or receiving payment for grandma’s antique hutch you decided to get rid of.
So, you’re probably wondering if you’ll see a Form 1099-K in your mailbox this year. It’s certainly possible but not necessarily a sign that you owe the government for a non-business transaction.
Here’s what’s important to know: You might receive one without owing any taxes on the reported income. This is because the payment network is obligated to do so for transactions above the 600 dollar mark (they’re covering their bases). Just because you get a 1099-K doesn’t automatically mean that the income is taxable.
Note, errors can occur and to be safe in having the most accurate information, if the amount stated on the form doesn’t match your transaction records, it’s your right to get it corrected. You’ll need to reach out to the vendor and keep a copy of the 1099-K they sent you for your records.
Let’s talk about some situations you might have questions about…
If you’re selling a personal item, like a car or a piece of furniture, generally this doesn’t require reporting on your return unless you make a profit that exceeds the item’s original cost.
If you find yourself selling inherited items, you would typically need to report this income, but you can offset it by deducting the cost basis of the items from the sales proceeds.
If you’re getting reimbursed by friends for a meal out, this shouldn’t result in a 1099-K. Same if a family member lends you money or borrows from you or you cover them for an expense like a flight home. The only reason you would receive one in this case is if it’s for a business expense. There will inevitably be some errors with classifying transaction types on the part of the vendor. If you receive a 1099-K for a mis-classified transaction, reach out and we’ll help you sort the issue out.
Here are a few other situations to consider regarding different types of transactions:
Payments to friends and family: Generally, if you receive money from New York/New Jersey Metro friends or family for goods or services, you might get a Form 1099K. But unless you’re running a business, you typically don’t need to report this on your tax return.
Foreign payment networks: Interestingly, if you’re engaged with networks outside the United States, they are not required to send out Form 1099-Ks. However, if you are conducting business, you still need to report this income on your return.
Digital goods and services: The IRS requires payment networks to report transactions involving digital goods and services. The exact details on how to report this on your return are still a bit unclear, but I’m here to guide you through the process as soon as the IRS provides further guidance.
Non-commercial activities: If you are involved in non-commercial activities, such as crowdfunding or peer-to-peer lending, you might see a Form 1099-K. The guidelines on reporting this income are still pending from the IRS, but rest assured, I’ll keep you updated.
Now, if you are doing business through Etsy or receiving electronic payments for some kind of self-employment (side gig or otherwise), it’s essential to report these payments as business income, even if you don’t owe any taxes on it. The new reporting requirements are just a little additional step to ensure everything lines up right on your returns.
I’m sure there will be many more situations that need clarification and tax insight. Remember, in this changing landscape, you’re not alone. I’m happy to guide you through and empower you to navigate the 1099-K changes with confidence and ease.
In your corner,