The IRS published a new tax tip in its email newsletter it sent to small businesses on July 22, 2022. The crux of the tip: if your hobby earns income, you must report it on your tax return.
The newsletter pointed to “IRS Tax Tip 2022-106” published on the IRS website on July 13, 2022, which explains the rules. The new tip comes half a year before people who may never have received Form 1099-K from payment-processors like PayPal and Venmo will receive them next year due to a lower reporting threshold for tax year 2022.
As the IRS explains on a separate page on its website, payment processors were required to report gross payments that exceeded $20,000 and over 200 transactions prior to tax-year 2022, but for returns for calendar years after 2021, they are required to report gross payments that exceed $600 – and no matter the number of transactions.
In the spring, eBay, Etsy, Mercari, OfferUp, Poshmark, Reverb, and Tradesy created the Coalition for 1099-K Fairness in an effort to get Congress to increase the tax-reporting threshold for sales on online marketplaces.
eBay sounded the alarm again in May, asking sellers to reach out to their members of Congress to urge them to pass a bill to raise the threshold “and limit the number of sellers getting these unnecessary forms.”
Regardless of the IRS tax tip issued this month, it’s likely many people will be taken by surprise next year when they receive a Form 1099-K and realize what they had considered dabbling in a hobby resulted in a tax obligation.
Best to file as early as possible next year, the IRS is going to be flooded with all the new 1099’s
Why does the IRS care what you put on your tax return? It’s not as though they look at them anyway! I sent in my return on January 3, 2022, and the IRS website does not even indicate that they received it yet (nearly 7 months later). I am due a refund of over $1,100, which I have not received. The IRS website says I should not call them unless I filed electronically (which I did not) or unless the website tells me to call (which it does not). So, I contacted my congressional representative, who reached out to them, and the IRS refused to reply to a congressional inquiry. Until the IRS starts processing returns/refunds, I’m not going to lose any sleep about what they do or do not want me to claim.
I’m curious why you didn’t file electronically … especially because you’re expecting a refund! When I get a refund, it’s in my bank in 10 days or less … because I file electronically!
With all the hoopla about 1099-K why does eBay fail to report sales and fee amounts with each Managed Payments payout? It is difficult to tease income and expenses from eBay Managed Payments reporting. Substantial Excel or relational database skills may not help unless the seller has lots of time to balance Managed Payments accounts.
Solutions offered by OneSaas, integrated with QuickBooks work well for PayPal capture and account for some eBay fees in Managed Payments but ignore others. How will eBay sellers balance their books and file accurate income tax returns? How will sellers determine if eBay 1099-K reports are accurate?
2023 will be the first time I have to deal with 1099’s I’ve been filing Schedule C for years but have always been under the 1099k threshold. Because I’m dealing with a relatively small amount of money (less than $10k in sales from any of the marketplaces, as long as the 1099’s are within a few dollars of what I expect them to be, I’ll use the 1099 numbers, since that’s what will be reported to the IRS.
Never had a problem with eBay 1099’s or justifying MP reports.
I checked MP every week for a year using a custom spreadsheet (or 2). It reconciled to the penny, almost every time. The times it didn’t, it was my error – oops. So in fact, they were correct 100% of the time. It is probably the only thing about eBay I DO trust. I give it a cursory look now, not going to keep banging my head against the wall doing busy work.
Same with 1099’s over the years – spot on.