What You Need to Know About The New 1099 K Problem

1099-k irs tax tips

The new 1099-K rules are here to stay and will affect many people, like you and me, and not just those with a small business.

The problem is, this year, you’ll probably receive a new IRS form 1099K tax form, that must be reported on your tax return. In previous years you probably never even knew this form existed.

For most people, it will be related to your business. But for many others you’ll still need to account for the information on your tax return. Even if you don’t think it’s not taxable.

Failure to report this tax form information will result in a nasty letter from the IRS. In this blog post, I’ll share with you what you need to know about the new 1099-K tax problem.

Here's some background information... this year, you may receive a form 1099K from any payment processer that you receive $600 or more, in payments. More people than ever will receive a 1099K this year unlike in years past because of the rule change.

Under the old rules, a payment processor would only send you a form 1099K if you exceeded both $20,000 in payments, and 200 or more total transactions with that payment processor.

Let’s talk about who is sending out the forms.

You have marketplaces like ebay, paypal, and etsy. Maybe services like ticket resellers such as ticketmaster, stub hub. Gambling sites like FanDuel. Or even digital payment services like Venmo and Apple Pay.

Everyone needs to pay attention, because when you receive one of these forms, you can’t just ignore it.

Allow me to go over some of the basics:

When you receive a 1099-K it shows you the gross payment amounts received by you from the payment processor.

The IRS assumes these transactions are income. So it’s up to you to report it correctly on your tax return to either confirm or refute the information the IRS presumes to be true.

For example if you’re reselling game tickets on StubHub, and you receive a 1099K showing the transaction… it’s up to you to report the amount on your tax return. It may not be fully taxable, so it’s up to you to figure out the taxable portion, and report that on your tax return. I’ve made a couple videos on how to do that which you can check out up here.

Do note that personal payments you received, like from a friend paying you back, for your half of a dinner bill, can end up being included on a form 1099-K. You still would need to report it on your tax return, but then back it out the non taxable portion.

So now that you understand the problem better, here’s what you need to know:

1. If you receive a 1099-K, save the form! You’ll need to account for this information at tax time.

2. If you receive a form because of activity on sites like Amazon, Ebay, or reselling stuff online, you’re probably considered to be in business according to the IRS. Even if you lost money on a transaction.

3. So with that being said, if applicable, it’s important to capture all relevant expenses. These expenses can help you to reduce the amount of taxes you would need to pay since you can deduct these from the gross amounts reported on the 1099-K. If you do have expenses to report, you’ll likely need to fill out a Schedule C on your tax return.

4. As you’ve probably guessed, if you receive a 1099K, your tax return just got a lot more complicated. You can still do your taxes on your own, as long as you can figure out the new reporting rules. I’m not going to go over them again here, but I’ll link a playlist up here with my videos on how to report the most common scenarios on your tax return.

Lots of people are complaining about the additional complexity created by the new 1099Ks, but it looks like they’re here to stay.

Just remember that if you receive one, you need to report it on your tax return or else you’ll get a nasty letter from the IRS.

Thankfully, with a little planning and a professional on your side, it’s a hassle that can be managed.

As always, thanks for reading and see you in the next blog post!


About The Author

Noel Lorenzana is an Illinois-licensed, Registered Certified Public Accountant with over 20 plus years of experience.

Through his online educational content, YouTube videos, easy-to-understand courses and 1-on-1 consulting, he gives you the tools to become tax savvy for yourself. 

Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.