Have you made money online this year? You may owe more taxes
As 2022 draws to a close, the IRS is alerting Americans so they can avoid a potential nasty surprise when they pay taxes next year.
Starting in 2023, more people who made money on eBay, Etsy, Poshmark, Uber or other digital platforms will have their income reported to the Internal Revenue Service. Anyone who has earned more than $600 through a gig platform or been paid that much on Venmo will receive a Form 1099-K, which means those funds will be reported to the IRS, the agency said.
Americans already receive 1099 forms if they make money as an independent contractor, if they earn interest on a bank savings account, or if they earn a large sum selling things online. What’s new is the $600 threshold.
Prior to this year, people only received a Form 1099-K if they earned at least $20,000 from online platforms and made more than 200 transactions on the platform. Now, a single transaction over $600 can trigger a 1099-K reporting requirement, according to the IRS.
Millions of people could potentially owe taxes
About one in four Americans have made money selling something online, renting out their home or using a digital platform to work, according to Bench. This suggests that the new IRS rule could affect millions of people.
Accountants point out that just getting a Form 1099 from the IRS doesn’t necessarily mean you owe additional tax. However, the new reporting requirements could come as a shock to casual online sellers or digital platform workers who haven’t treated their side gigs like a business and tracked expenses that could reduce what they owe in taxes.
For example, someone who delivers food for DoorDash could deduct a portion of the cost of gas, car maintenance, car loan payments, cell phone service, and bags that keep dishes in the fridge. warm from its gross income.
What should you do?
If you worked on demand or sold items online, start collecting information about the costs you incurred to complete these tasks.
“If you’re an online seller and you buy supplies or even drive your car to pick up items or ship items, you need to keep track of those [expenses]“, Lisa Greene-Lewis, CPA at TurboTax, told CBS MoneyWatch earlier this year. “They are deductible if they are related to your business.”
For example, if you’re selling designer clothes on Poshmark, write down what you paid for that item in the first place. In many cases, sellers charge less for a used item than they paid for it and should not pay tax on the income they earn selling it.
If you have a side gig that runs an eBay or Etsy business, the money you spend on website maintenance, advertisements or posts promoted on the platform, storage space for your merchandise, and shipping costs are all business expenses that you can deduct from your gross income. sales, according to tax experts.
Could the law change?
It’s possible. Companies like Airbnb, eBay, Etsy, PayPal and Poshmark have formed a group dubbed the “Coalition for 1099-K Justiceand are lobbying Congress to relax the $600 reporting rule. A House GOP member wrote to the IRS last week calling for the law to be pushed back a year, saying “this new requirement will be confusing and unworkable.”
The group and lawmakers met last week to discuss easing the law, but with weeks to go before the session, it’s unclear whether a deal will be struck, Bloomberg Tax reported.