What is the Form 1099-K and what do I do with it if I receive one?
Businesses, sole proprietors, self-employed
Gig workers
Sellers of goods and services, or personal items
Individuals who rent property through third party apps
Individuals earning money from a side hustle
What if I send money to my family members as a gift?
Money sent between family and friends as a gift for reimbursement is not required to be reported on a Form 1099-K because this is not a payment for goods or services. For examples, if you receive money as a gift from a family member for college expenses through a payment app or a friend reimburses you to pay their portion of a trip through a payment app, then these funds are not reported.
For 2023 popular payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions instead of payments over $600 like the pervious years regulations. However, the delayed threshold since it's relasing could leave some taxpayers receiving a Form 1099-K in January reporting payment of less than $20,000. The IRS is planning for a $5,000 threshold for 2024.
Gig workers who receive a Form 1099-K should have income reported on Schedule C. If they have a net profit, then it should be reported on Schedule SE. Keep in mind estimated tax payments may be necessary if there is a net profit. Let's take a look at reporting the sale of a personal item. You must first start by calculating if the sale is a gain or loss. To do so, you find the sales price less the purchase price to give you a gain or loss. A loss is not deductible and a gain must be reported on Form 8949, Sales and Other Dispositions of Capital Assets. This form is used to report your short-term and long-term transactions involving capital assets on your tax return. As well as Form 1040, Schedule D, Capital Gains and Losses will be filed with your return. For instance, a boat cost $15,000 and sold for $20,000. The gain is $5,000. You would use the Form 8949 to report the sales and other dispositions of capital assets and the Schedule D on Form 1040 for capital gains and losses. However, if the boat cost $40,000 and sold for $25,000 the loss would be $15,000. The sale might be reported on Form 1099-K and the loss would be report on either Form 1040, Schedule 1, additional income and adjustments to income or Form 8949 and Form 1040, Schedule D. If you report a loss on the sale of a personal item, you should list the type and amount from Form 1099-K, personal item sold at a loss of $25,000. When entering on Schedule D, use Form 8949. Enter the $25,000 in Column D as proceeds, enter the $40,000 in Column E as cost or basis, enter "L" in Column F, enter $15000 in Column G as the adjustment amount and the results in $0 gain or loss in Column H.
Who files Form 1099-K when there are multiple Payment Settlement Entities?
Generally the Payment Settlement Entities that submits the instructions to transfer the funds is obligated to file. The PSE, (Payment Settlement Entities), that is obligated to file may designate another PSE if they agree in writing. It is imperative maintain a clear recordkeeping system by reviewing payment activities, identifying sources of gross proceeds, track and record deductible expenses, review withholding and estimated tax options.
Reporting threshold applies only to payments settled through payment settlement entities like payment apps and online marketplaces for the sale of goods or services. Gift and reimbursement transactions are not reportable. Taxpayers must continue to report all income, unless excluded by law whether a Form 1099-K is received or not. The $600 threshold implementation was delayed for 2023, and planned $5,000 threshold for 2024.
Taxpayers who receive a Form 1099-K for the sale of a personal capital asset at a gain should:
Report gain of capital asset using Form 8949 AND Form 1040
Report gain on Schedule C
Do not report the gain
None of the above
Taxpayers likely to receive a Form 1099-K from a payment app are:
Businesses, sole proprietors, self-employed
Gig workers
Sellers of goods and services or personal items
All of the above
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