You Made $700 From an Online Side Hustle. Now the IRS Will Know.
Now that your 2021 taxes are done—or at least under way—it’s time to focus on a key tax change for 2022 affecting millions of Americans making money through platforms like eBay, Etsy, Airbnb, Venmo and Uber. This change, which is beginning to ripple through e-commerce, tightens the tax reporting on income earned by people selling goods and services through online platforms. Starting this year, the platforms must send a Form 1099-K to the Internal Revenue Service reporting an individual’s total revenue if platform earnings top $600.
Now, many more sellers, resellers and gig workers than in the past will have their platform earnings reported to the IRS. The upshot: They may have to pay taxes they haven’t been paying, or else keep complex records showing why they don’t need to. Under prior law, platforms only had to send 1099-K forms if a vendor earned more than $20,000 and had over 200 transactions. The new bar is so low that opponents are trying to get it changed before the platforms send out a blizzard of confusing tax forms next January.
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Platforms like eBay, Airbnb, et al. have had to send 1099-K forms to their sellers for years. But the prior threshold of 200 transactions and $20,000 of revenue left room for significant tax dodging. If an owner of a short-term rental earned $30,000 from 25 rentals in a year, the rental platform didn’t have to send a 1099-K form because the owner had 200 or fewer transactions—even though revenue topped $20,000.
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The tax issues are different for many sellers on eBay and similar platforms, especially “casual” resellers cleaning out closets and attics. These vendors may not owe tax at all if they’re selling items for less than they paid—or, when it comes to items inherited from Grandma, less than the item’s value on the date of death. They also won’t have to submit a form to the IRS detailing the purchase and selling prices of items, at least for now.
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Alarmed by the $600 threshold’s effects on e-commerce, some members of Congress are hoping to change the law for 2022. Proposals include repealing current law and restoring prior thresholds, or raising the 1099-K bar to $5,000. Nina Olson is one prominent tax specialist supporting an increase in the threshold, perhaps to $5,000. Ms. Olson, the longtime National Taxpayer Advocate at the IRS, now heads the Center for Taxpayer Rights. She points out that the $600 threshold for 1099-K forms, which also applies to two other 1099 forms received by self-employed workers, derives from a 1950s provision that wasn’t adjusted for inflation. If it had been, these thresholds would now be about $6,000, and she hopes Congress will raise them for all three forms.
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https://www.wsj.com/articles/you-made-700-from-an-online-side-hustle-now-the-irs-will-know-11650015000 (subscription)
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Most people's households are filled with stuff for which receipts and valuation on specific dates are nonexistent.
Congress is creating another tax nightmare.
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