Goods, Services and You: Get Ready for New IRS Reporting Rules in 2024

The amounts reported on Form 1099-K include only payments received for goods or services. The form does not include adjustments for fees, discounts, shipping or refunds. Those amounts are not "income" in the eyes of the IRS but can be deducted from the amounts reported on Form 1099-K when the tax return is filed.

Clients who use sites like Venmo and PayPal to transfer funds for personal purposes should not see those amounts reported on Form 1099-K. However, that does make it important to carefully review the information contained on the form. If the amounts reported do not match the taxpayer's records, the taxpayer can contact the third-party provider and request a corrected form.

While it's important for taxpayers to understand the changing law governing Form 1099-K issuance, it's also important for them to remember that the IRS expects taxpayers to report all income regardless of whether they receive a Form 1099-K. Even if clients do not cross the applicable threshold, they are still responsible for reporting income earned through online sales and side hustles.

Sale of Personal Items

One particularly confusing area involves situations in which taxpayers sell personal items online via platforms like eBay and Poshmark. In prior years, the $20,000 threshold was high enough that most of these online sellers didn't receive Forms 1099-K.

However, with the decreased thresholds, these taxpayers may now see sale proceeds reported on Form 1099-K. When taxpayers sell used personal goods, they're taxed only if they sell them at a profit. Taxpayers generally determine gain or loss by subtracting the sale price from the amount they paid for the item.

Gain on the sale of items that were previously held for personal use is taxable. However, losses are not deductible. These transactions must be reported on Form 8949, Sales and Other Dispositions of Capital Assets, and Form 1040, U.S. Individual Income Tax Return, Schedule D, Capital Gains and Losses.

The IRS has directed taxpayers who sold personal items at a loss to make offsetting entries on Form 1040, Schedule 1, Additional Income and Adjustments to Income, by: 

• reporting the proceeds as listed on Form 1099-K on Part I – Line 8z – Other Income, using the description "Form 1099-K Personal Item Sold at a Loss" and
• reporting their costs, up to but not more than the Form 1099-K amount, on Part II – Line 24z – Other Adjustments, using the description "Form 1099-K Personal Item Sold at a Loss."

Conclusion

Millions of taxpayers who have never received a Form 1099-K are likely to begin receiving these forms in 2024 and subsequent years. The IRS is releasing guidance and examples on a rolling basis to help these taxpayers understand their reporting obligations — and advisors should pay close attention to the details.

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