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At the same rate as the technological landscape is changing, the laws that govern our digital transactions, including those enforced by the IRS, are also undergoing rapid change. If you are a member of the community of freelancers or those who engage in side hustles, you should get ready for the change in the 1099-K reporting standard that has generated quite a stir in recent months.
CNET has compiled a detailed guide that will help you handle the upcoming tax season with ease. In this guide, we will break down the crucial elements that you need to know.
Table of Contents
IRS’s 1099-K Reporting Change
The Internal Revenue Service (IRS) had the intention of implementing a new reporting regulation that would require payment applications such as PayPal, Venmo, Cash App, or Zelle to disclose earnings that are greater than $600 yearly. This rule was initially announced in 2022. In spite of this, freelancers were left with more questions than answers as a result of the shaky execution of this change.
On the other hand, beginning with the tax year 2024, this barrier will climb to $5,000 through a gradual implementation. The Internal Revenue Service (IRS) is hoping that this move would reduce the number of errors that occur and provide both the agency and payment apps sufficient time to adjust.
IRS 1099-K Change
Due to the fact that the reporting requirement has been put on hold until 2023, freelancers will continue to disclose their earnings as usual. In the event that payments totaling more than $20,000 across 200 transactions are received, no 1099-K forms will be received.
You should anticipate receiving a 1099-K by the year 2024 if you make more than $5,000 from payment apps. A potential update from the IRS regarding this requirement should be kept an eye out for.
Payment Apps Under the IRS Radar and More
According to CNET, beginning in 2024, all third-party payment apps, including PayPal and Venmo as well as specialist platforms such as Fivver and Upwork, would be forced to give the Internal Revenue Service information regarding transactions.
Consider establishing separate accounts for your personal and professional operations in order to avoid any issues that may arise from taxes. This will help you stay organized.
Misconceptions to the contrary, the Internal Revenue Service is not targeting money that is provided to friends or family using payment apps. In the area of non-taxable items, you can find things like gifts, favors, or reimbursements. It is imperative that transactions be appropriately labeled in order to differentiate between personal and business-related payments.
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Tax Implications for Selling Items
It will not have an effect on your taxes if you sell personal things at a loss; however, if you earn more than $5,000 from your side hustle, you should be prepared to pay taxes on that revenue. In order to avoid any confusion during tax season, it is important to keep meticulous records of all transactions and purchases.
Be prepared to provide your EIN, ITIN, or Social Security number in the event that payment apps ask for confirmation of your tax information. The use of a 1099-K may make filing more straightforward, but manual tracking is still essential.
You should anticipate receiving individual 1099-NECs for cash transactions or direct transfers, and you should also think about using accounting software to make record-keeping more streamlined.
In Other News
On the 23rd of January, the Internal Revenue Service (IRS) made public their intentions to simplify, clarify, and make the regulations more understandable. Improvements in compliance and a reduction in taxpayer worry are the goals of these new messages. according to Reuters.
“Simple Notice Initiative” was introduced by the Internal Revenue Service (IRS) and the United States Treasury Department (Treasury) with 31 redesigned notices for the 2024 tax filing season, which begins on Monday.
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