Beginning on January 1, 2023, third part settlement organizations (TPSO) such as Paypal and Venmo will be reporting any transactions that exceed $600.00 to the IRS in the form of a 1099-K
Not sure if this affects Zelle payments. Might have to resort back to the money orders or regular checks in case of wine sales from person to person.
Happy Holidays.
delayed one year
Note that itās $600 in aggregate payments even if spread out over many smaller transactions. The previous threshold was $20k (and more than 200 transactions).
This was supposed to affect tax year 2022 transfers, but the IRS delayed implementation to allow for a smoother (ha!) transition.
Iāve used Venmo, but only to pay rather than to receive. In all cases, it was for sharing costs for backyard parties and similar. Seems like there will be a lot of noise along with the signal.
-Al
Delayed one year to be reported, but it will affect transactions starting in the new year.
Correct, so the folks most affected need to start keeping good records and possibly paying quarterly. These would be gig economy subcontractors, people with small online businesses not already reporting, and people selling items for more than cost basis is these organizations are involved.
Hoping it doesnāt needlessly complicated tax returns for the many people who are simply reimbursing shared costs or selling things like textbooks that are almost always sold at a loss. Itās not difficult to reach $600 given that itās aggregate.
-Al
Thanks for that clarification ā I didnāt know about the aggregate aspect of the $600. Thatās really, really low
Yes, itās stunningly low. I participate in monthly backyard lunches were the hostess might hit that amount in reimbursements for costs in a single month. Apparently, it was was chosen to be the same as one of the thresholds for 1099-MISC.
I get the motivation, but seems like it has the possibility to create a lot of headache for people for whom the payments are not income. I guess weāll see how itās implemented.
-Al
From what Iāve read, this only affects commercial transactions. For instance we pay my motherās landscaper by Venmo. So friend and family id not affected.
If Iām wrong please correct.
Certainly, itās only commercial transactions that owe tax, at least as defined by IRS (eg, sales of goods and services). Real question is whether Venmo (and others) are able to distinguish, or whether they send out lots of 1099s to cover their a$$.
Venmo, at least, does distinguish between personal accounts and business accounts. But, people selling wine for more than their cost basis are pretty likely to be using a personal account. What I plan to do is to use the note function to list something like āpersonal: reimbursement for share of food for lunchā.
-Al
My question, and the reason why I posed it here, is what if I sell wine that I purchased that exceeds $600.00, and someone pays me via Venmo or Paypal, the transaction will be reported and thus it is up to me to declare it. Could indicate what is to come with respect to notices from the IRS about funds received in the future.
I do not think it will be just for commercial purposes, but I could be wrong.
I think commercial means things the IRS may consider commercial. Selling goods would qualify, although you may still not owe tax but may have to keep some records to show you sold for less than cost basis. If more, then they would consider the excess to be income.
How the TPSO treats it and whether they send you a 1099-K, I have no idea. I agree that you have reason for caution, donāt think it will be clear how it shakes out until it does.
Thanks for bringing it up, it has potential to affect a lot of folks.
-Al
BTW, Iām certainly not an expert, just suggesting potential gotchas, and I think this was only half-baked when it was passed.
-Al
Keep in mind that just because you get a 1099 doesnāt mean you have to report taxable income, or report the entire amount as taxable income. You could get a 1099 for a payment to you for services rendered (all taxable), or for a loan payment to you (only the interest is taxable), or for a wine you sold at auction - for less than your basis (no taxable income). It is just a record of the ātop lineā payment which of course makes it easier for the IRS to track, but it is not some kind of declaration or determination that the entire amount is taxable.
I think the question is whether you (as an individual, not a business) have to report, eg, on 1040 Schedule 1 lines 8z and 24z (the inflow and offset). If you receive a 1099-K, wonāt they expect to see it reported?
-Al
Iāll defer to Maureen, but I donāt think so. If you and I co-host a group dinner and I pay the $1500 tab and you pay your half to me by Venmo, Iām not reporting that $750 payment anywhere. Itās not income. I donāt even know what line Iād report it on.
Though to be safe Iād probably save the 1099 with a note so Iād know what it was if I got audited and they asked about it.
Unlike a W-2 or a 1099-INT, such a 1099 is just evidence of a payment, not of income.
I was thinking more about selling something and receiving payment through Venmo or Paypal, eg, an item that cost you $1000 and you sold for $800. Whether a portion of the $1000 is income or not depends on the sales price. You could be running a side business reselling items or you could be selling off stuff at a loss. IRS might want to know.
-Al
This is something that is going to evolve moving forward. I run a not for profit with regard to education. Our calendar year is July to June and we receive donations and ticket sales through Paypal and receive a K-1, of course it never matches up to our donations/ticket sale. However we do record the total payments we receive.
I can see many individuals asking their accountant about this moving forward. With respect to selling wine it depends on if is many transactions or just a single one. Either way, it cannot hurt to keep records of not just the sale but also the expenses that one used with respect to that wine - utility cost for cellaring, materials to ship, postage and of course the cost basis.
If itās income, the IRS will want to know. They want to know now, even without a 1099. I agree with you (and stated above) that if I received a 1099 from Venmo showing a $1,000 payment to me from someone, that might represent $1,000 in income, or $100 in income, or no income. But Iām not going to report the entire payment somewhere just because I got a 1099. Iām going to report the income and probably keep a record of why that amount is income rather than some other amount. Being reported on a 1099 doesnāt make it income, it just makes it a transaction.
Unless they change the form to ask for all payments to you reflected on form 1099, I donāt think thereās even a place to report miscellaneous non-income payments.
The instructions say to report taxable income on 8z, though they do note that items sold at a loss should be reported (along with the basis), but other than that the instructions say not to report non-taxable income on 8z. So for example if I receive a 1099 showing a $1,000 payment, which was repayment of a loan I made, and only $100 of the payment was interest, Iām going to report the $100 as interest income and Iām not going to report the other $900 anywhere. And If I receive a 1099 for something non-taxable like half the cost of a dinner I co-hosted with a friend, Iām not going to report it at all. Again, unless they change the form to require reconciliation to all 1099s, which would be a huge PITA.
For some time I have wondered what would be the effects of eliminating cash in the US in favor of WeChat-like payment systems where the government has access to all records but where access to the the data has HIPAA-like data protection laws and data anonymization in place to prevent abuse. I have nothing to hide financially so I shouldnāt have issues with it other than general privacy concerns which are still greatly important.
I really donāt see the IRS having resources to look at small numbers of individual transactions like wine sales. Far more interesting would be bigger trends in the data, like if you are receiving hundreds of $500 payments in a year. But without protections I can certainly see the potential for gross abuses.
Unless someone on commerce corner sells thousands of dollars through Paypal or Venmo, you can bet that the 1099-R will show about the total transactions for the year. If you are a high earner or the ātarget earnerāā of earning more than $400,000 ( I believe), there is going to be more scrutiny perhaps. Everyone is different.
Bottom line, start saving your receipts and keep a journal of sales/expenses related to wine sales if that is what it is for.