Why does the U.S. tax code have to be so confusing? The “powers that be” claim that they are all trying to make the code more fair and less difficult for the taxpayer. But is anyone believing that rationale?
Whether you believe it or not, the truth is that tax rules are a constantly moving target. Case in point? The 1099-K confusion that has been the recent topic of conversation.
Recently, it was declared that there were to be no new tax forms that you needed to wait on before filing your tax return for 2022. (Remember, for 2021, you had to wait on Stimulus Check and Advance Child Tax Credit statements before you could file your taxes.)
Then, there was the alert from IRS that a new form, the 1099-K, was coming and you better wait to receive it before filing your taxes! That form was going to be sent to anyone who used third party platforms for financial transactions, like Venmo or Paypal, if they had received over $600 in payments from this source.
But the target has moved yet again! On December 23, 2022, IRS announced a delay on the reporting thresholds for third party settlement organizations.
As a result of this delay, third-party settlement organizations (TPSO) will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021. The delay was enacted to help with the transition to the newly proposed threshold that will apply in 2023.
Under this new law, beginning January 1, 2023, a TPSO is required to report third-party network transactions paid in 2023 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions.
Oh, and if the payment platform doesn’t send you one, well, you are still responsible for reporting that income. Form 1099K will just bring it to light.
For now, here’s where the target landed for filing your 2022 taxes.
For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions. Therefore, there will be significantly less people who receive the 1099-K this year.
If you accept payments from credit/debit cards or third-party payment networks such as PayPal or Venmo, you may receive a 1099-K. A Form 1099-K has your Social Security number or taxpayer identification number on it, so the IRS will know you’ve received the money. Hence, you better report it.
But here’s the caveat. Receiving a 1099-K doesn’t necessarily mean you owe taxes on that money. First, not all transactions on your 1099-K may be business-related. (The amount could include your roommate reimbursing you for groceries, transferring funds among family members, etc) Second, you might have tax deductions that could offset some of your business income.
So what’s the bottom line? IRS wants you to report all income. (period) Having a tax professional who knows where the constantly moving tax target has landed and how to use the code to your advantage is an extreme advantage to you when filing taxes. A tax professional who understands not only your unique situation but how to advocate for you so that you are not unjustly paying more than your fair share is essential.
If you need someone who keeps their eye on the constantly moving IRS target, contact us. To learn more about us, visit www.SaundersTax.com. If you want to reserve an appointment for your taxes, call us at 301-714-2071. We have been helping our clients enjoy a Less Taxing Life and More Prosperous Solutions since 1984.