You Made $700 From an Online Side Hustle. Now the IRS Will Know.

[question everything]

Now that your 2021 taxes are done—or at least under way—it’s time to focus on a key tax change for 2022 affecting millions of Americans making money through platforms like eBay, Etsy, Airbnb, Venmo and Uber. This change, which is beginning to ripple through e-commerce, tightens the tax reporting on income earned by people selling goods and services through online platforms. Starting this year, the platforms must send a Form 1099-K to the Internal Revenue Service reporting an individual’s total revenue if platform earnings top $600.

Now, many more sellers, resellers and gig workers than in the past will have their platform earnings reported to the IRS. The upshot: They may have to pay taxes they haven’t been paying, or else keep complex records showing why they don’t need to. Under prior law, platforms only had to send 1099-K forms if a vendor earned more than $20,000 and had over 200 transactions. The new bar is so low that opponents are trying to get it changed before the platforms send out a blizzard of confusing tax forms next January.

(snip)

Platforms like eBay, Airbnb, et al. have had to send 1099-K forms to their sellers for years. But the prior threshold of 200 transactions and $20,000 of revenue left room for significant tax dodging. If an owner of a short-term rental earned $30,000 from 25 rentals in a year, the rental platform didn’t have to send a 1099-K form because the owner had 200 or fewer transactions—even though revenue topped $20,000.

(snip)

The tax issues are different for many sellers on eBay and similar platforms, especially “casual” resellers cleaning out closets and attics. These vendors may not owe tax at all if they’re selling items for less than they paid—or, when it comes to items inherited from Grandma, less than the item’s value on the date of death. They also won’t have to submit a form to the IRS detailing the purchase and selling prices of items, at least for now.

(snip)

Alarmed by the $600 threshold’s effects on e-commerce, some members of Congress are hoping to change the law for 2022. Proposals include repealing current law and restoring prior thresholds, or raising the 1099-K bar to $5,000. Nina Olson is one prominent tax specialist supporting an increase in the threshold, perhaps to $5,000. Ms. Olson, the longtime National Taxpayer Advocate at the IRS, now heads the Center for Taxpayer Rights. She points out that the $600 threshold for 1099-K forms, which also applies to two other 1099 forms received by self-employed workers, derives from a 1950s provision that wasn’t adjusted for inflation. If it had been, these thresholds would now be about $6,000, and she hopes Congress will raise them for all three forms.

More..

https://www.wsj.com/articles/you-made-700-from-an-online-side-hustle-now-the-irs-will-know-11650015000 (subscription)

[MichMan]

1. The change down to $600 was part of the American Rescue Plan passed a year ago.

[bucolic_frolic]

2. Itemizing sales to IRS will be so popular & the IRS has legions of personnel to handle such fluff

Most people's households are filled with stuff for which receipts and valuation on specific dates are nonexistent.

Congress is creating another tax nightmare.

[Paper Roses]

3. I'm one of those with a house full of stuff that I need to move along. Been here for 53 years.

I am not trying to make $$$, I just need to thin out some of the furniture that I have accumulated. I'm a widow and my 2 children are in their own houses and don't need anything. I can't imagine how I can make any kind of a dent in this stuff at $600.

Whoever thought this ceiling was practical has no idea what anyone facing a possible move will face. Can't give it away, not interested in making money but the figure for this is ridiculous. The market for my furniture is in the dumps. It seems that old, formal furniture is out...I'd be lucky to get much of anything. My dining room table was almost $2000 years ago, I'd be lucky to get $500 for it now. add a couple of small tables and I'm way over the limit.

[sl8]

4. If you get $500 for something you paid $2000 for, that doesn't count against you.

You owe taxes on the profit you make. If you sold the table for $2200, then $200 of that would be taxable.

[Paper Roses]

9. I have 53 years worth of stuff in an 8 room house with an attic.

No reason to save receipts for all those years. I'd be lucky to get a few thousand dollars for the stuff I'd like to sell. $600 is just not workable for me and others.

[sl8]

12. If you're selling items for less than you paid for them, the sales revenues aren't taxed as income.

It doesn't matter whether it's one item or a million. You pay income tax on the profits.

Now, ebay/Paypal/etc will generate a 1099-k once you go over $600, but that doesn't mean it's taxable income.

[MichMan]

13. How does one prove what one paid for something in 1997 ?

[sl8]

14. Proof? A receipt, I suppose.

Is it required that you prove the original cost?

When we have to come up with values for our capital equipment at work (for depreciation purposes & whatnot) we were instructed to make our best estimate. The internet helps tremendously in looking up original prices, blue books, price guides, etc..

On edit:
This rule doesn't change the taxes you owe one iota, it changes (lowers) the threshold for reporting transactions. You'd owe the same tax with or without that 1099-k.

[MichMan]

15. I'll just say $20 less than I sold it for then

[sl8]

16. OK.

Out of curiosity, how would you handle it if there was no 1099-k? Your tax obligation wouldn't change.

[MichMan]

17. The IRS wouldn't be sent a document listing the total aggregate amount of everything I sold

(including shiping) and it wouldn't therefore be my responsibility to prove to them it isn't all new income

[sl8]

18. I haven't seen a requirement that the taxpayer has to prove that transactions reported are not incom

Have you seen that somewhere?

[MichMan]

20. Are tax forms available for 2023 yet?

No one knows yet. Other 1099 must be entered on your tax forms and are regarded as income. Since the justification for this new law is apparently to capture untaxed "gig" income, it isn't illogical to expect that it will be considered taxable

[sl8]

22. The 1099-K form reports transactions.

Some, all, or none of that might be taxable income

https://www.irs.gov/businesses/understanding-your-form-1099-k

Understanding Your Form 1099-K

[MichMan]

25. It will all be considered as gross taxable business income according to the link

What should I do with this information?

It is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive from your business. In most cases, your business income will be in the form of cash, checks, and debit/credit card payments. Business income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.

Sounds like anyone getting a 1099-K will have to file business tax forms and schedules along with their individual return regardless if they actually have a business, or are just selling old items to get rid of clutter

[sl8]

26. You should *consider* the amounts shown on Form 1099-K when *calculating* gross receipts n/t

[A HERETIC I AM]

27. But you have to be able to prove you bought it for $2000

Last edited Mon Apr 18, 2022, 08:08 PM - Edit history (1)

I'm certainly no tax expert, but from what I understand, you either need a receipt for the purchase or a reliable source that shows the market value of the item at the time you bought it.

Otherwise, you're just making up numbers.

[Deuxcents]

6. What if you donated your things to H4H or other organizations..

Could you write that off your taxes? I’m always asked if I want a receipt..

[Paper Roses]

10. Need $$$, not deductions.

[bucolic_frolic]

7. Interesting

The actual reporting now is not that big a deal. Schedule C, and keep a profit and loss spreadsheet and business expenses. Spreadsheets and methods can be learned in a day or two and are free online.

It's the itemized reporting that makes no sense to me. Why does the IRS need to know? Why would they care? A 1099 generates a number, you work off that. Items without receipts are considered to have zero basis, because original cost can't be proven.

As for your table ... there are companies that will clean out houses or parts thereof. If it's mid-century colonial it could have value as collectible. At auction. Which is its own nightmare.

[intrepidity]

8. Huh?

tems without receipts are considered to have zero basis, because original cost can't be proven.

So, you bought something two decades ago, didn't keep a receipt because you're not a hoarder, sell it now (at a huge loss usually), but now you are liable for tax on the total sale price?

Yeah, that seems fair.

[bucolic_frolic]

11. The IRS doesn't know how or where you obtained an item

It could be curbside pickup, thrift store find, or full retail in 1980. Each is a different number that can't be proven without receipts.

[intrepidity]

28. So.....they assume the worst

because of course they do. Oh, unless you're TFG, in which case, whatever.

No wonder. Just, no wonder.

[PoindexterOglethorpe]

29. Have a yard sale.

That would fly under the IRS's radar.

[Hoyt]

5. Easy enough to estimate what you paid, that's exactly what IRS will do if

they decide to make an issue of it.

My guess is the won’t make an issue unless it’s obvious you turned a significant profit and it’s a side business, rather than just getting rid of some junk.

[MichMan]

19. Will the IRS also expect Social Security and Medicare taxes be paid on it like other income ?

[Hoyt]

21. If it's deemed business (self-employment) income, Yep.

[progree]

23. I would think that selling goods for more than one paid for them is a capital gains issue

just like if I bought stock for $1,000 and sold it for $1,500. The $500 would be taxed at the capital gains tax rate. No Medicare or SS (FICA) tax on it.

But driving an Uber would be taxed like wage income (income net of expenses) - taxed at the ordinary tax rate and subject to the FICA taxes.

But I dunno.

[sl8]

24. IRS: Understanding Your Form 1099-K

https://www.irs.gov/businesses/understanding-your-form-1099-k

(The link is much better formatted than my copy and paste)

Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS information return used to report certain payment transactions to improve voluntary tax compliance. You should receive Form 1099-K by January 31st if, in the prior calendar year, you received payments:

From payment card transactions (e.g., debit, credit, or stored-value cards), and/or
In settlement of third-party payment network transactions above the minimum reporting thresholds as follows:

For returns for calendar years prior to 2022:
Gross payments that exceed $20,000, AND
More than 200 such transactions
For returns for calendar years after 2021:
Gross payments that exceed $600, AND
Any number of transactions
Note: For transactions made after March 11, 2021, The American Rescue Plan Act of 2021 clarifies Form 1099-K reporting by third-party settlement organizations applies only for transactions for the provision of goods or services settled through a third-party payment network.

What does my Form 1099-K report to me?
Form 1099-K includes the gross amount of all reportable payment transactions. You will receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions. A reportable payment transaction is defined as a payment card transaction or a third-party network transaction.

Payment card transaction means any transaction in which a payment card, or any account number or other identifying data associated with a payment card, is accepted as payment.
Third party network transaction means any transaction that is settled through a third-party payment network, but only after the total amount of such transactions exceeds the minimum reporting thresholds.
The gross amount of a reportable payment does not include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

NOTE: The minimum reporting thresholds apply only to payments settled through a third-party network; there is no threshold for payment card transactions.

What should I do with this information?
It is important that your business books and records reflect your business income, including any amounts that may be reported on Form 1099-K. You must report on your income tax return all income you receive from your business. In most cases, your business income will be in the form of cash, checks, and debit/credit card payments. Business income is generally referred to as gross receipts on income tax returns. Therefore, you should consider the amounts shown on Form 1099-K, along with all other amounts received, when calculating gross receipts for your income tax return.

In addition --
Check your payment card receipt records and merchant statements to confirm that the amount on your Form 1099-K is accurate
Review your records to ensure your gross receipts are accurate and reported correctly on your income tax return
Determine whether you have reported income from all forms of payment received, including cash, checks, and debit, credit, and stored-value card transactions
Maintain documentation to support both the income and deductions you report on your income tax return

[..]

[JudyM]

31. K&R