Did you sell those old baseball cards on eBay? How about those crochet designs you’ve sold on Etsy? What about those cheesecakes you’ve been selling to your neighbors on Venmo? If you made more than $600, they’ll be sending your name to the IRS. Laura Saunders reports at The Wall Street Journal:
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.
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.
Action Line: With every politician promising to pay for their big spending plans by “cracking down on waste fraud and abuse,” is it any wonder they’re coming after your baked goods sales receipts? That’s what happens when politicians think of your money as their money. Your money should be put to work for you and your family, not on some plan cooked up in Washington, D.C. If you need help building a plan for your money, let’s talk.
Originally posted on Your Survival Guy.