New 1099K thresholds! The IRS will now know how much you make 😬

if you've been neglecting to file income taxes that you might owe from your online sales those days of flying under the radar might be quickly coming to an end hey my name is mark two and i'm a cpa and fellow reseller who specializes in helping resellers and online businesses with taxes and with growing their businesses profitably and today i want to talk about the new 600 1099 threshold and how that affects you as an online seller and small business owner and i'm not talking about the 1099 nec which stands for non-employee compensation and prior to 2020 was the 1099 miss or miscellaneous we're not talking about that form that's the one you're supposed to send your independent contractors when you pay them at least 600 during the year i'm talking about the 1099 k and the updated threshold starting in 2022. if you've ever had sales during the year of at least 20 000 on any given platform and at least 200 transactions then you have likely received a form 1099-k these are forms that the irs requires your payment processors to send you if you surpass certain thresholds historically the threshold was twenty thousand dollars and two hundred transactions so if you had at least that level of sales activity that went through paypal let's say then paypal was required to send you a 1099k showing the total dollar amount processed during the year but they don't just send that information to you they are also sending it to the irs there are still hundreds of thousands if not millions of people who aren't including their online selling activity on their taxes some don't know they're supposed to others just procrastinate or don't know how to go about it but when the irs receives a record of your online selling income and then they don't see that income reported on your tax return they'll send you a letter with an updated tax bill so let's say you had 25 000 of sales on ebay this year but you didn't include that on your tax return the irs will see that you didn't report the twenty five thousand dollars on your tax return and they'll send you a tax bill for about an additional four thousand to eight thousand dollars depending on your income tax rate that's usually more than enough to put someone into a tailspin and that's when they send me a frantic email asking for direction the problem with this is that the irs is not factoring in any of the deductions that you're entitled to so typically what i'll do is help the person amend their tax return to include not only the 25 000 in sales that the irs expected to see but also all of the business deductions that they were entitled to so after deducting expenses such as cost of goods sold supplies subscriptions travel mileage and so on it could be that the taxable profit ends up being more like five thousand dollars in which case they could end up owing less than a thousand dollars which is much less than the irs showed or in some cases their expenses could actually exceed their income to create a loss and they could even receive a refund so that's what happens when you don't report your income and the irs has a record of it but what if you're below that 20 000 threshold and you don't get a 1099k you don't have to report that income right wrong this is an all too common misconception the irs might not have a record of it but that doesn't mean that you don't have to report it you do typically still need to include your business activity on your tax return even if your income is below that 1099 threshold millions of people fall below the threshold and many of them are not reporting their business income and since the government has been spending a ton of money lately for coronavirus relief and stimulus efforts they have to look for creative new ways to fund that increased spending do you know where this is going as part of the american rescue plan act of 2021 the 1099k threshold was reduced from 20 000 and 200 transactions to just 600 regardless of the number of transactions so if you've always reported your online sales activity whether or not you received a 1099k this won't change anything for you if you haven't reported your sales activity in the past because you haven't received a 1099k you won't likely be able to continue to hide or at least go unnoticed beyond 2022 there are a lot of people who are in for a major wake-up call resellers in vermont and massachusetts have been dealing with this for the last few years because they already adopted the 600 threshold at the state level so i'm sure people in those states feel a bit better knowing that we're all in this together now one other thing to remember is that the amount listed on your 1099k is not necessarily your actual sales number the total shown often includes any sales tax collected and any refunds you send the customers are typically not subtracted out so if you aren't accounting for those things on your tax return you're likely paying too much tax typically what you'll want to do is make sure you're reporting your gross income on your taxes that's at least as much as the 1099 k number and then deduct the necessary amounts to make your tax return consistent with your own records and i can talk more about that in another video so make sure you're keeping good records i always trust my records more than what's shown on the 1099s and i'm working on a beginning bookkeeping for resellers course that i hope to launch within a few months so you can click below to get on my waiting list or enroll depending on when you watch this video if you have questions post them below or come post them in the accounting for online sellers facebook group be sure to subscribe for more videos where i'll talk more about how to get your taxes and accounting on track and your reselling business check out at not your dead cpa on instagram for more tips and behind the scenes the links below will help you find more resources to optimize your tax situation and overcome the anxiety so you can focus on building your business profitably [Music] you

Channel: Not Your Dad's CPA

Views: 567

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Id: X6PniwHEj-c

Length: 5min 45sec (345 seconds)

Published: Mon Dec 20 2021