Form 1099-K - IRS Tax Changes and Business Accounts (2024)

FAQs

Form 1099-K - IRS Tax Changes and Business Accounts? ›

Form 1099-K, Payment Card and Third Party Network Transactions, is an IRS form that is used to report certain payment transactions. If taxpayers receive a Form 1099-K, they should use that information with their other tax records to determine their correct tax liability.

Yes, the Form 1099-K reporting threshold doesn't affect whether payments are taxable or whether a tax return must be filed. All income, no matter the amount, is taxable unless the tax law says it isn't – even if you don't get a Form 1099-K.

You just won't receive a 1099-K form from third-party apps unless you receive over $20,000 in payments across over 200 transactions in 2023. Instead, you may receive 1099-NECs from any businesses you work with.

In this post, there is one key reminder we want to make: If the income you reported on the tax return for your business doesn't match up closely enough with information on your gross receipts that the IRS has from 1099-K filings, it may be a red flag that leads to a tax audit.

Gig worker, freelancer, hobby seller and other self-employed – You're considered a sole proprietor and should report Form 1099-K payment information on – Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Partnership – Use Schedule E, (Form 1040), Supplemental Income and Loss.

If you're a solopreneur or sole proprietor, your 1099-Ks count toward your self-employment income, which is subject to the self-employment tax. Record the information from your 1099-Ks as income on your Schedule C.

Third-party payment platforms and online marketplaces won't be required to report 2023 transactions on a Form 1099-K to the IRS or online sellers for the $600 threshold. Instead, the previous 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect for 2023.

H.R. 7024 would increase the reporting threshold for the 1099-MISC and 1099-NEC from $600 to $1,000 for payments made on or after January 1, 2024. For future years, this threshold would be tied to inflation. The bill would also decrease the reporting threshold for payments of direct sales from $5,000 to $1,000.

Although the Form 1099-K reporting threshold for 2023 is $20,000, companies could still send the form for totals over $600. No matter the amount, if you receive payments for selling goods or services or renting property you must report your income.

What raises red flags with the IRS? ›

Too many deductions taken are the most common self-employed audit red flags. The IRS will examine whether you are running a legitimate business and making a profit or just making a bit of money from your hobby. Be sure to keep receipts and document all expenses as it can make things a bit ore awkward if you don't.

The new ”$600 rule”

Under the new rules set forth by the IRS, if you got paid more than $600 for the transaction of goods and services through third-party payment platforms, you will receive a 1099-K for reporting the income.

Be aware that certain financial practices that your small business may take can also act as small business tax audit triggers, like: Excessive expenses. Misclassification of employees. Types of deductions.

The merchant acquiring entity that transfers funds to the participating payee (taxpayer) is responsible for reporting the gross amount of reportable payment card transactions.

If you received a 1099-K for items that should not be considered income, such as gifts or reimbursem*nts from friends or family, take the following steps. Contact the issuer immediately to have a corrected 1099-K issued. The issuer information is located on the top left corner of the 1099-K.

When you work on a 1099 contract basis, the IRS considers you to be self-employed. That means that in addition to income tax, you'll need to pay self-employment tax. As of 2022, the self-employment tax is 15.3% of the first $147,000 in net profits, plus 2.9% of anything earned over that amount.

Often, the IRS will recalculate your tax return by including the missing income and determining the amount of tax they think that you owe. This can include penalties and interest. If you realize that you didn't include some income on your tax return, you can file an amended return that includes the missing information.

What Is the 1099 Form Used for? The 1099 form is used to report non-employment income to the Internal Revenue Service (IRS). Businesses are typically required to issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.

Reporting cash income

All you'll need to do is include it when you fill out your Schedule C, which shows your business income and business expenses (and, as a result, your net income from self-employment). To report your cash income, just include it with your "gross receipts" on line 1 of the form.