Unbeknownst to many Americans, the American Rescue Plan Act that provided $1400 stimulus checks had a section in one of its many pages to revise the 1099-k reporting requirements for payment processors. The old requirements for someone to receive a 1099-k were $20,000 and 200 transactions. The new rule is drastically different requiring a 1099-K for selling only $600 with no transaction quantity requirement.
Most people who have been in business for themselves or started a side business will understand this change. However, for others, this may be something you have never seen. If you decide to declutter your house and get rid of some items you no longer use you may choose to sell them on an online yardsale website such as eBay, Mercari, Offerup, Facebook, etc. If you collect the money digitally and you have a cumulative total of $600 in sales on that platform, the IRS will be expecting that number to be included in your tax return and you will receive a 1099-k in the mail starting January 1 for the 2022 tax year.
This reporting requirement was added under the guise of stopping tax evasion. While it will probably stop some of that it will also create a huge burden for the average person that wants to declutter.
Here’s an example. You have three older iPads worth $200 each and you decide it’s time to let them go. You list them on eBay and sell them for full price. You take your newly found $600 and put it towards that new robotic lawnmower you have been thinking about. You forget about this transaction until you get a 1099-K tax form in the mail. When you go to file your taxes this will be added on as $600 of extra income which you will owe tax on at your current tax bracket.
Fortunately, there are some options to legally avoid paying taxes on these transactions that are not income. More than likely you are actually taking a huge loss when you declutter.
Income taxes are an interesting part of life. No one officially teaches you how to do them, do them wrong and you could pay huge fines or even serve jail time. If you use an accountant to file your taxes make sure to tell them if you sold anything online for the most accurate advice for your situation. In most cases, it will be a simple notation and you won’ be required to pay the extra tax. If you are someone that sells hundreds of items though, you may have a harder time proving that you are not operating a business. Accounting for the original price paid for items is very tedious especially if you did not start from the beginning of the year tracking it with accounting software like QuickBooks. If it comes down to it and you sold an amount closer to the original 1099-k requirements of $20,000 It may be worth operating as a business so you can track your profits or losses. If the IRS is already requiring you to account for and explain your decluttering you may as well start a business for the tax benefits. If you need a local CPA to get advice from or file your taxes, we have some options listed below (not endorsements just providing some options).
- Carr Riggs & Ingram (205) 625-3472
- Dunn Tax Service (205) 625-4004