FOLSOM, Calif. (PRWEB) February 17, 2022
Why the change?
Due to an increase in the “gig economy,” reports have shown a significant rise in the underreporting of income, causing a tax gap of around $166 billion per year. For this reason, President Biden signed the American Rescue Plan Act which lowers the threshold at which third-party payments must be reported.
Who does this affect?
It depends! If you receive payments over $600 in exchange for “goods and services” using a third-party app – such as eBay, Uber, Venmo, etc. – over the course of the tax year, you will receive 1099-Ks from those platforms.
This change went into effect for federal returns at the beginning of 2022. However, many states have already begun implementing these changes. So, if you live in one of the below states and received over $600 for goods and services in 2021, you may receive – or have already received – a 1099-K for the 2021 tax year:
Arkansas
Illinois
Maryland
Massachusetts
Mississippi
Missouri
New Jersey
Vermont
Virginia
Washington D.C.
If you do not live in one of these states, then you will not see a 1099-K show up in your mailbox until early 2023.
What should I do if I receive a 1099-K?
Please keep in mind that the receipt of a 1099-K does not automatically mean that you have income to report on your tax return. If you receive a 1099-K, start by pulling a transaction report for that tax year. Review all your transactions carefully to see if they match what is listed on the 1099-K form. If your personal and business transactions are listed together, make sure to view them separately. If necessary, gather documentation to show which transactions were for business versus which ones were personal. (And if you haven’t already started keeping invoices and receipts for business transactions, now would be a good time to start!)
Anything else I should do?
If this still seems a little confusing, using a tax professional to help prepare your taxes may be a good idea. These individuals know the ins and outs of the changing laws and requirements and can help ensure you keep appropriate documentation and make the proper claims on your tax return.
And last but not least, we recommend purchasing Audit Defense with TaxAudit! If you ever receive a notice from the IRS or your state taxing agency, we will handle all communications on your behalf — from the very first notice to the resolution of your tax matter. This includes:
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Our goal is to provide you with peace of mind when dealing with the IRS or state tax agency and ensure that you never pay more tax than you rightfully owe. With over 12 million members and experience working on thousands of audit cases every year, we are truly the experts in our field and would love to have you become a member with us.
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