Made money online this year? You could owe more in taxes
With 2022 drawing to a close, the IRS is alerting Americans so they can avoid a potentially nasty surprise when they pay taxes next year.
Starting in 2023, more people who made money on eBay, Etsy, Poshmark, Uber or other digital platforms will have their income reported to the Internal Revenue Service. Anyone who made more than $600 via a gig platform or who was paid that much on Venmo will receive a 1099-K form, meaning that those funds will be reported to the IRS, the agency said.
Americans already receive 1099 forms if they make money as an independent contractor, if they earn interest on a bank savings account or if they make a significant sum by selling things online. What's new is the $600 threshold.
Before this year, people only received a 1099-K form if they earned at least $20,000 from online platforms and made more than 200 transactions on the platform. Now, a single transaction exceeding $600 can trigger a 1099-K reporting requirement, according too IRS.
Millions could potentially owe taxes
Roughly one in four Americans has made money by selling something online, renting their home or using a digital platform to take on work, according to Pew. That suggests the new IRS rule could affect millions of people.
Accountants emphasize that just getting a 1099 form from the IRS doesn't necessarily mean you owe additional tax. However, the new reporting obligations could come as a shock for casual online sellers or digital platform workers who haven't treated their side gigs as a business and haven't kept track of expenses that might reduce what they owe in taxes.
For instance, a person who delivers food for DoorDash would be eligible to deduct some of the cost of gas, car maintenance, auto loan payments, cell phone service and the bags that keep dishes hot from their gross earnings.
What should you do?
If you've done gig work or sold items online, start collecting information on any costs you've incurred in the process of completing those tasks.
"If you're an online seller and you're buying supplies or even driving your car to pick up items or ship items out, you should keep track of those [expenses]," Lisa Greene-Lewis, a CPA at TurboTax, told CBS MoneyWatch earlier this year. "They are deductible if they're related to your business."
For instance, if you're selling designer clothes on Poshmark, note what you paid for that item in the first place. In many cases, sellers are charging less for a used item than they paid for it and shouldn't owe any taxes on the income they earn by selling it.
If you have a side gig running an eBay or Etsy business, money you spend on maintaining a website, ads or promoted posts on the platform, storage space for your goods and shipping costs are all business-related expenses that you can deduct from your gross sales, according to tax experts.
Could the law change?
It's possible. Companies including Airbnb, eBay, Etsy, PayPal and Poshmark have formed a group dubbed the "Coalition for 1099-K Fairness" and are lobbying Congress to relax the $600 reporting rule. A GOP member of the House wrote to the IRS last week asking for the law to be pushed back by a year, claiming that "this new requirement will be confusing and unworkable."
The group and lawmakers met last week to discuss loosening the law, but with just a few weeks left in the session it's uncertain if any deal will be reached, Bloomberg Tax reported.