Delay of New Tax Reporting Rules Could Cause Confusion

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Delay of New Tax Reporting Rules Could Cause Confusion

Because of a late-breaking change by the IRS in November, you may still receive an unfamiliar tax form that may need to be reported on your business’s 2023 tax return.

Here’s what you need to know about this change and how it could affect you and your business.

Background

Credit card and electronic payment processing companies use Form 1099-K to provide information to the IRS about payments they’ve made to you if certain thresholds are met.

Under the old rules, the payment processing companies would only provide payment information to the IRS if you exceeded both $20,000 in payments AND 200 or more total transactions during a year for that particular processor.

Starting with the 2022 tax year, this $20,000 threshold was lowered to $600, while the 200 transaction criteria was eliminated.

After receiving feedback on how burdensome this new law was going to be for millions of taxpayers and business owners, the IRS in late 2022 delayed the implementation of the new $600 threshold until 2023.

The IRS in November of this year again delayed the implementation of the $600 threshold, this time with plans to use 2024 as a transition year with a $5,000 threshold before eventually enforcing the $600 threshold in 2025 or a later year.

What you should do

If you receive one or more Form 1099-Ks (even if you’re not supposed to!) here are some steps to consider:

  • Save the form. If you receive a 1099-K, save the form! You will need to account for this information on your tax return or face the possibility of the activity triggering a correspondence audit from the IRS.

  • It’s a business transaction. If you receive the form due to activity on sites like Amazon, Etsy, or you are reselling tickets or taking rent payments, you are considered to be in business in the eyes of the IRS, even if you lost money on a transaction.

  • Capture relevant expenses. While the revenue reported on Form 1099-K must be reported on your tax return, remember that you can also include any related expenses to reduce reportable income. If you do have expenses to report, you’ll likely need to fill out Schedule C on your tax return.

  • Stay organized. If you receive any Form 1099-Ks, your tax return will now be more complex. But you can help by staying organized with great documentation to explain exactly what the income was that you received from third-party payment platforms.