Have You Sold Anything Online?

Published On: January 27th, 2023Categories: Accounting, CARES Act, Paycheck Protection Program, Small Business, Taxes

Use Venmo? Expect a tax form. Sell tickets online? Expect a tax form. eBay, Amazon? More tax forms. Anyone receiving more than $600 through digital payment tools and seller platforms is now having that transaction reported to the IRS. This reporting is being done via 1099-K. Here is what you need to know about the 1099-Ks you will see this year.

What is happening now?
If you use digital payments and seller platforms, you’ll need to provide your social security number to accept digital payments or to buy and sell tickets online. And understand every time you use these platforms, the transactions for those receiving funds may have this activity reported to the IRS.

Your taxes may be more complicated
If the IRS considers the transaction business-related, you’ll need to report it on your tax return. Even for causal transactions that lose money. It’s often the case when selling event tickets for a loss or taking digital payments at a garage sale.

You may receive many 1099-Ks
You can expect to receive a separate 1099-K from every platform you use, or you exceed the annual threshold. Prior to 2022, the reporting threshold was  $20,000 and more than 200 transactions. But with the perceived underreporting of income from those in the gig economy, the transaction threshold was eliminated, and the dollar threshold was lowered to $600.

More automated audits
Now the IRS will use computer auditing to compare your 1099-Ks with what you report on your tax return and audit you if they do not match.

What can you do?

  • Coach your friends
    Whenever you exchange money with friends in a digital platform like Venmo, have them mark the transaction as non-business. Each application will handle this differently, but it’s critical you do this to avoid getting a 1099-k in error.
  • Use cash or check
    When receiving payments from friends, if there is a potential for error ask for cash or check. This will avoid the 1099-k mess.
  • Split payments
    When splitting a bill at a restaurant, don’t have one person pay and then get reimbursement. Instead, ask the restaurant to split the bill, and everyone pay their share.
  • Understand the problem
    When receiving a digital payment, you’re relying on the person paying you to code the transaction correctly. So to protect yourself, you now need to keep track of digital money received, who it was from, and for what purpose.

True business transactions
Some platforms may report your income twice, once on the 1099-K and again on another tax form like the 1099-MISC or 1099-NEC. You must actively monitor this information.

Casual users of seller platforms
Infrequent sellers on platforms like eBay, Etsy, and Amazon are now in business when payments are received over $600. So be prepared to create a business tax return to capture these activities.

1099-K reporting has wide-reaching implications. Given the level of public outcry, a rollback of 1099-K reporting thresholds is possible. But given the nature of congress, don’t plan on it.

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About the Author: Shelly Spata, CPA

Shelly Spata joined the firm in 1998, and her name went on the door in 1999. She now serves as the Managing Partner of the firm. "As a business owner myself, I understand the complexities and challenges business owners face, and I strive to add value by helping clients understand their financial statements, manage tax consequences, and clearly see the financial and tax ramifications — both positive and negative — of decisions they make," she explains. "Without good financial information, it’s like driving a car blind, but with good information, clients are able to maximize profits."