If you have income coming in from a side hustle, be aware that reporting requirements have changed. For several years now, the IRS has required payments made to merchants through various marketplaces, payment processors (credit & debit cards), and third-party settlement organizations (TPSOs) to be reported on Form 1099-K. The purpose being to uncover merchants that do not report all of their income. The IRS is now able to compare the 1099-K amounts to the amount reported on an individual’s or business’s tax return.
In the past the filing threshold for 1099-Ks was when the gross amount of total reportable payment transactions during a calendar year exceeded $20,000, and the aggregate number of transactions for that payee in that year exceeded 200. Thus, entrepreneurs with a small side hustle selling merchandise on the Internet directly or through the likes of Amazon, E-Bay and others may not have received a 1099-K in the past.
Reporting for your side hustle will change January 2023
That will all change beginning in January 2023 when reporting begins for 2022 transactions. The change is due to the American Rescue Plan Act. The Act included a provision to reduce the reporting threshold to $600, effective in 2022. Also impacted by this reduced threshold will be homeowners who rent out their vacation homes through third parties. Before, folks renting through Airbnb and VRBO generally avoided 1099-Ks in the past due to the 200-transaction threshold. Also, individuals providing services through Internet websites seldom met the $20,000 threshold and have not received 1099-Ks in the past. These services could include the following:
- delivery
- babysitting
- companionship
- home cleaning
- elder care and others
The 1099-K only reports gross income. The cost of the products sold and other business expenses can be deducted to determine a merchant’s net taxable profit. Those renting vacation homes through TPSOs can deduct a variety of expenses like:
- depreciation
- utilities
- repairs, and others,
Those providing services can deduct certain travel and other expenses. The net profits are subject to income tax, and generally are also subject to self-employment tax. This would include rentals where significant personal services are performed. Thus, keeping records of expenses becomes important.
Please contact this office for further information related to your specific side hustle and what expenses will be deductible.
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