If you sell items through Etsy or eBay, you may be surprised to find out that your transactions will be reported to the IRS beginning on 1 January 2022. Form 1099-K is currently issued for all credit card transactions by Third-Party Settlement Organizations (credit card processors) if the total processed is at least $20,000 and there are at least 200 transactions.
The American Rescue Plan Act of 2021 (the most recent coronavirus stimulus bill) changed the threshold to match Form 1099-NEC. The new reporting requirement is one transaction for at least $600. Many taxpayers will be surprised to see a new Form 1099 show up in the spring of 2023.
Just because you sold something on eBay for more than $600 does not mean that the transaction is taxable. For instance, if you are lucky enough to sell that old treadmill for more than $600, you will only be subject to tax if you recognize a gain on the sale. For most taxpayers disposing of household items, this simply does not apply.
If you have a regular Etsy business and you have avoided reporting in the past, you will need to get into compliance or risk significant tax understatement penalties. Obviously, this applies to any business where you accept credit card transactions.
If you receive Form 1099-K in 2023, do NOT throw it away. Even if you are not subject to tax on the transaction, you will need to report the proceeds on your return to avoid further IRS scrutiny and correspondence. The IRS is expected to issue additional guidance in the coming months, and your tax preparer should be aware of the any new reporting requirements by then.
As always, Woodford Financial is available to help navigate the reporting and compliance issues associated with this new change in the tax law.