New Rules for 1099-K Income that Might Surprise You
The 2021 tax filing deadline is long past, but now it’s time to think about new tax ramifications for 2022. In this blog, we discuss the change made to the rules for reporting 1099-K income, and what that could mean for you.
Here’s What You Should Know about the 1099-K Tax Form
Form 1099-K dates back to 2011. Prior to January 1, 2022, for most of the states in the country, the reportable sales threshold was $20,000 for third-party network companies. But now, 1099-K’s must be issued for multiple transactions or individual transactions totaling $600 or more.
What Are Third-Party Network Companies the Report 1099-K Income?
Third-party network companies are companies such as Venmo, Amazon, PayPal, eBay, Square, UberEATS, Cash App, etc. So, if your small business accepts Venmo payments, you will get a 1099-K from Venmo.
Here’s Where 1099-K Income It Gets Muddy
You could get a 1099-K even if you don’t owe anything. That’s because not all sales are taxable. As an example, imagine you sell your old bike on Craig’s List and accept an $800 Venmo payment. The bicycle cost you $1,500 new, so you actually lost money. Therefore, the $800 is not taxable, but you will still get a 1099-K from Venmo. So, when you file your taxes, you’ll have to prove to the IRS that you don’t actually owe any taxes on that sale.
To make matters worse, the dollar amount of each transaction reported is determined on the date of the transaction. It cannot include any credits or refunds. So, the next day, if you refund $20 for a missing part on your bike, Venmo won’t subtract that from the $800 it reports on the 1099-K.
Turn to the Professionals for Complicated Accounting Work
Trust PHB CPA’s to sort this out for you. PHB CPA’s are well-known for their expertise in preparing business taxes in Greater Nashville.
Tip: Be careful to keep good records of all your transactions and whether they are taxable or not. If your mother makes you a short-term loan until payday with a Venmo payment, you don’t want to have to pay taxes on it as income!