Are You Trying to Make Money Online? Well, the IRS Would Love to Know About It.

This Week's Quote:

“The happiness of your life depends upon the quality of your thoughts.”

                                  -Marcus Aurelius, Roman Emperor

Since the first online markets came out, people have been selling everything from sweaters to computers. It turns out Uncle Sam has been missing out on his cut and has asked the IRS to get it to him. A new law passed by congress for the 2022 tax year requires a 1099-K to be sent from these online platforms to the IRS that informs them of anyone earning more than $600, which potentially has tax implications for anyone involved in this space.
 
-Zak Kitzmiller
 
You Made $700 From an Online Side Hustle. Now the IRS Will Know.

A new tax law means online platforms will have to file a 1099-K for people earning more than $600

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.

Here’s what’s going on. Last year, Congress quietly lowered the 1099-K threshold as part of the American Rescue Plan Act. The goal was to boost tax compliance in an area notorious for lacking it—income the IRS doesn’t know about.

According to the agency’s research, tax compliance is highest when employers, financial institutions and others tell the IRS about payments to individuals. These are reported on forms like W-2 wage statements or an array of 1099 forms for other types of income.

Compliance suffers when there isn’t such reporting. The IRS’s most recent tax-gap study found that of $245 billion annually of misreported individual income taxes that are owed but not paid, 45% involved income without 1099s or similar reporting. Only 4% of the gap came from wage income subject to reporting and withholding.

Credit Given to: Laura Saunders.  Published April 15, 2022 on Wall Street Journal
 
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This Week’s Author, Zak Kitzmiller