05/29/2023
Because recently this topic has raised a lot of concerns let’s clarify it as simple as it is possible.
This is to provide an explanation on new 1099-K reporting requirements which most of the people mention in their phone calls to Armor Tax Services as “reporting of money receipt of $600 or more from Cash App, Venmo etc to the IRS.”
So, The American Rescue Plan had changed the threshold of $20,000 when a third-party settlement organization (TPSO) such as E-bay, Amazon, Cash App, Venmo, PayPal, etc had to issue a 1099-K to someone who received in 2021 and in earlier years $20,000 or more to $600 or more in 2022. In its turn the IRS delayed this requirement to 2023. (Please make sure you understand the difference between TPSO and the payment platforms. For instance, Zelle is not a TPSO but a payment platform that transfer money between bank accounts, therefore,that reporting requirement does not apply to Zelle).
So, now that in January 2024 you as well as the IRS will receive the forms 1099-K regarding your activities with TPSOs let’s go to the the most important part which is how that works and how that affects your taxes.
For example, lets say in 2023 you sold your used iPhone on Ebay for $600 which you purchased earlier in that year or earlier for $1200. Ebay will then issue you and report to the IRS a form 1099-K showing that sale. Because you sold it for less than it’s purchase price you won’t owe any taxes but since you are the only one who can provide the IRS with the purchase price information you will need to report that sale on your 2023 tax return to show your loss which you can not deduct, however, from your wage income, self employment income or capital gain because the loss resulting from a sale of personal items is not deductible. So, in this particular case you need to report to show that not taxes are owed. However, had you sold the same iphone for more than it’s purchase price (let’s say you purchased for $1200 and sold for $1300) you would have had to report a gain and pay taxes on that $100 gain accordingly.
Like it or not, dura lex sed lex. The law is hard but the law. Those people who make art works, jewelry, clothing, printing stuffs and other items and sell them through eBay, Amazon or other TPSOs , along with the people who buy and re-sell any inventory online will be dealing with increased reporting requirements on their tax returns. There are other details, you might need to know if you don’t just once in a while sell a personal item but also do e-commerce business selling different inventories, capital assets or provide paid personal services. The differences may apply also depending what TPSO you use. For example, when you sell business inventories via Amazon, it retains and pay sales taxes for you while Shopify doesn’t. In both cases you will need to file sales tax returns but you won’t need to make payment of the sales tax if you sell via Amazon and have to make payment if you sell via Shopify provided that the inventory you sell is subject to sales taxes(for example food, is not subject to a sales tax). We will continue keeping you updated regarding this and other tax changes. If this explanation was useful for you please click on like button if there are still questions please ask them in a comment section.
ARMOR TAX SERVICES helps its clients to comply with this as well as other federal and state tax requirements.
