Prepare yourself for the era of the 1099-K. The tax form is used to disclose transactions with services such asPayPal. Until this year, anyone with less than $20,000 in total payments could not avoid paying taxes on money earned on such platforms. The companies have to report gross payments of more than $600 to the IRS. Small-business owners and people who empty their closets on EBay will receive a tax return from any service provider where their income exceeds that amount.
Lexi, who asked that her last name not be disclosed because she fears an IRS audit, spends her weekends rummaging through flea markets, estate sales, and storage unit auctions for hidden treasures. She has made as much as $15,000 a year by selling those items and her old clothes and cookware on a number of websites. She did not say anything to the IRS. Under the new regulations, if she raids her closet for a vintage dress, she will be considered taxable income unless she can prove she is selling it at a loss. She says she is always cleaning out her house. The new rule requires me to track everything.
Entrepreneurs say the rule change will cause an administrative headaches because many users don't separate personal transactions from business revenue on platforms. Marvette Critney, a real estate broker in Decatur, Ga., uses the internet to get money for referrals from websites, for income from coaching and consulting, and for paying back small amounts owed to friends. Having to figure out which payments are income is the biggest impact.
If you want to reduce the confusion, you could open a second account for commercial activities or separate payments by platform. Some customers won't have an account with your preferred app, so that's not always practical. He was confused when he paid a writer for help with a website. There is a check mark option in the Venmo app. Is that what it means? The writer thought the button applied to goods, not services, but she was wrong. He says he might have done it wrong. "I'm fuzzy."
Tech companies are against the rule because they don't like the idea of collecting tax ID numbers for millions of clients. The Coalition for 1099-K Fairness is a group of players who want to protect online sellers and businesses from unfair tax and privacy burdens. If the rule stays in place, it is suggested that entrepreneurs acquire an employer identification number to avoid having to reveal their Social Security number.
According to William DeJesus, co- founder of TaxTerminal.com, one benefit of the shift is that it will allow small companies to not have to pay taxes. Everyone needs to be aware of that. Proponents say it level the playing field. A merchant on EBay used to sell a used laptop for $800, expecting to pay $150 in taxes. A smaller rival could price the same device at less than $600 and not report income.
Even some big vendors say that the shift will make life difficult for small businesses. John Frigo is the e- commerce manager at Best Price Nutrition, an international seller of supplements. billionaires and millionaires don't cheat on taxes at all.
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