Along with the tech landscape, the rules governing our digital transactions are also rapidly evolving. If you are in the freelance or side hustle community, prepare for the IRS's 1099-K reporting change, which has caused quite a stir in recent months.
In this comprehensive guide, CNET, we break down the essential details you need to know to navigate the upcoming tax season with ease.
IRS's 1099-K Reporting Change
First introduced in 2022, the Internal Revenue Service (IRS) had intended to implement a new reporting rule requiring payment apps like PayPal, Venmo, Cash App, or Zelle to report earnings over $600 annually. However, the rocky launch of this change left freelancers with more questions than answers.
However, for 2024 taxes, this threshold will be raised to $5,000 in a phased rollout. The IRS hopes this adjustment will minimize inaccuracies and provide ample time for both the agency and payment apps to adapt.
IRS 1099-K Change
The reporting requirement was paused for 2023, meaning freelancers will report earnings as usual. No 1099-K forms will be received unless payments exceed $20,000 across 200 transactions.
But come 2024, expect a 1099-K if you earn more than $5,000 via payment apps. Keep an eye out for potential IRS updates on this requirement.
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Payment Apps Under the IRS Radar and More
CNET tells us that all third-party payment apps, from PayPal and Venmo to specialized platforms like Fivver and Upwork, will be required to report transactions to the IRS in 2024.
To stay organized, consider setting up separate accounts for professional and personal transactions to avoid tax-related complications.
Contrary to rumors, the IRS is not targeting money sent to family or friends through payment apps. Gifts, favors, or reimbursements fall into the non-taxable category. Ensure proper labeling of transactions to distinguish personal from business-related payments.
Tax Implications for Selling Items
Selling personal items at a loss won't impact your taxes, but for side hustles exceeding $5,000 in earnings, prepare for taxable income. Keep meticulous records of purchases and transactions to avoid any confusion come tax season.
Payment apps may request confirmation of your tax information, so be ready with your EIN, ITIN, or SSN. While a 1099-K might simplify filing, manual tracking remains crucial.
Expect individual 1099-NECs for direct deposits or cash transactions, and consider employing accounting software for smoother record-keeping.
In Other News
On Jan. 23, the Internal Revenue Service (IRS) announced plans to make the 'simpler, clearer, and understandable'. These redesigned communications aim to improve compliance and reduce taxpayer anxiety. (via Reuters).
The IRS and the US Treasury launched the "Simple Notice Initiative" with 31 redesigned notices for the 2024 tax filing season, which begins on Monday.
Stay posted here at Tech Times.
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