The IRS has recently announced new regulations that will require individuals who earn over $600 for the transaction of goods and services through third-party payment platforms to report their income using a 1099-K tax form.
These changes mean that more people with side hustles and small businesses will need to report their earnings in order to comply with the updated rules. The American Rescue Plan of 2021, which takes effect in January 2024, has been a topic of discussion lately. It mandates 1099 reporting from third-party settlement organizations and payment processors if payments for goods and services exceed $600 per year.
As an Amazon seller, you might be wondering how the IRS $600 reporting rule affects you. To provide more insights on this matter, Mario Lucibello, a partner at Greenhaus Riordan & Co, LLP, an accounting firm specializing in eCommerce tax, shared some thoughts. Mario says that if you are an Amazon business and you’re serious about making money, then you likely already meet the $20,000 annual threshold and receive the necessary 1099s. However, it might be a concern for individuals using platforms like eBay to sell personal items, as it doesn’t take much to reach $600.
The IRS $600 reporting rule applies to all payment processors, including popular ones like PayPal, Venmo, Facebook Marketplace, and Cash App. It’s essential to note that this rule doesn’t cover payments made to your loved ones for shared expenses such as dining out, gift-giving, and group travel.
Thanks to the user-friendly nature of these payment apps, reaching the $600 threshold can happen quickly. Nevertheless, if you’re selling specific items like used golf clubs, remember to keep a record of the original purchase receipt and the amount you received for selling them. Having proof of the financial loss can help you avoid any tax implications.
In some cases, there might be business scenarios where reporting is necessary but hasn’t been done in the past. For example, if you did some consulting work for a friend and they paid you $1,000 through PayPal, it’s easy to forget to report this activity since it’s not your primary source of income. However, once you receive the 1099-K form, it serves as a helpful reminder. It’s important to remember that once you reach the $600 level, both you and the IRS will receive a 1099-K, which needs to be addressed during the tax period.
To ensure a smooth process, Mario suggests marking your calendar to check your payment platforms for tax documents regularly. It’s crucial that you discuss these 1099s with your tax preparer since the IRS will be reviewing your tax returns to match the 1099-K information with your reported income. If you’d like to learn more about the history of the IRS $600 tax rule for individuals, you can find additional information here.
Amazon, as a prominent platform for eCommerce sellers, also shared some insights regarding the subject. According to Amazon, they are fully aware of the recent change in tax reporting rules, and they will be providing Form 1099-K to sellers based on the new thresholds.
You can expect to receive this form either electronically or through physical mail delivery, depending on your preferred method. To access the Form 1099-K in your Seller Central account, you’ll need to go to the Reports section and select the Tax Document Library for the relevant year. Please ensure that you sign in as the primary user, as only this person can view the forms.
In order to avoid any surprises during tax season, it’s crucial to maintain meticulous records of your personal and business finances. Keeping track of your earnings from third-party marketplace apps is essential, so you don’t encounter any unexpected challenges.
Make sure to stay organized and prepared for tax season by maintaining good record-keeping practices and/or hiring a CPA with a specialty in eCommerce accounting.
