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Find out how to handle 1099-Ks for private Venmo or PayPal payments

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Because the tax season approaches, many Americans are bracing for a recent reporting change for third-party payment networks like Venmo or PayPal.  

Starting in 2022, you may receive Form 1099-K, which reports income to the IRS, for business payments over $600. But experts say it’s possible you may receive 1099-Ks for private transfers by mistake.

“As tax preparers, we’re roughly expecting the worst,” said Albert Campo, an authorized public accountant and president of AJC Accounting Services in Manalapan, Latest Jersey.

“We’re expecting most of our clients to get this stuff,” he said. “So we’re attempting to be proactive in addressing it.” 

More from Personal Finance:
IRS warns of $600 threshold for Third-party payment reporting
Preparing for possible 1099-Ks for Venmo, PayPal payments
Early filers should wait to submit tax returns in 2023, IRS warns

Firms file 1099-Ks annually to report bank card and third-party payments in what’s generally known as an “information return,” with copies going to the IRS and the taxpayer.

Before 2022, taxpayers received 1099-Ks with greater than 200 transactions price an aggregate above $20,000. However the American Rescue Plan Act of 2021 dropped the brink to simply $600. Now, even a single transaction can trigger the shape.

Find out how to handle 1099-Ks for private transfers

The IRS says the reporting change doesn’t apply to non-public transfers, reminiscent of gifts or reimbursements between family and friends. Nonetheless, the agency explains what to do if you happen to’ve received a 1099-K in error.   

“If the data is wrong on the 1099-K, taxpayers should contact the payer immediately, whose name appears within the upper left corner on the shape,” the IRS said in a release on Dec. 6. “The IRS cannot correct it.”

But experts say it might be easier to deal with the 1099-K in your tax return, moderately than waiting for Venmo, PayPal or other issuers to send a corrected form. 

At the top of the day, you wish the IRS computers to acknowledge that the 1099-K was reported in your return.

Albert Campo

President of AJC Accounting Services

Tommy Lucas, an authorized financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, suggests reporting the 1099-K on Schedule D by showing the income and the identical amount as an expense to “zero it out.”

For instance, if you happen to receive a 1099-K with $800 of income, you possibly can report $800 under “proceeds” and $800 under “cost” for a net profit of $0, he explained.   

Alternatively, you should utilize the identical strategy on Schedule C by reporting the earnings under “gross receipts or sales” and the identical amount under “other” within the expense section, Campo said.

When you receive a 1099-K for business transfers, you may also report that income, together with possible deductions on Schedule C.

“At the top of the day, you wish the IRS computers to acknowledge that the 1099-K was reported in your return,” he said. Otherwise, the system may flag your filing and send an automatic notice, which takes time to resolve.

“The most important thing, as at all times, is avoiding that notice,” Lucas said. “Because you simply cannot come up with the IRS immediately.”

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