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IRS updated the frequently asked questions (FAQs)

On December 28, 2022, the IRS updated the frequently asked questions (FAQs) for Form 1099-K, Payment Card and Third Party Network Transactions, in Fact Sheet FS-2022-41:

https://www.irs.gov/pub/taxpros/fs-2022-41.pdf

Updates were made to the following sections of the FAQs:

– Definitions

– General information

– Individuals

Notably, these IRS frequently asked questions define what qualifies as a payment card and outlines what characterizes a third party payment network.

Here’s a glimpse at the questions answered:

Q1. Why am I receiving a Form 1099-K, from a payment card or third party settlement organization?

A1. Third party information reporting for certain income is required by law. Third party information reporting has been shown to increase voluntary tax compliance, improve tax collections and assessments within the IRS, and thereby reduce the tax gap.


Q2. How is the IRS planning to address the changes to the Form 1099-K reporting requirements?

A2. As outlined in Notice 2023-10, the IRS is delaying the implementation of the requirement for third party business reporting more than $600 for the 2022 calendar year. More specifically, the IRS is delaying the implementation of the provision of the American Rescue Plan Act of 2021 that:

  • Lowered the threshold for reporting third party network transactions from aggregate payments exceeding $20,000 to aggregate payments exceeding $600 during the calendar year.
  • Eliminated the 200 transaction threshold for reporting third party network transactions entirely.

Q3. Is the gain or loss on the sale of a personal item used to compute my taxable income? Is that reported on a Form 1099-K?

A3. Gain or loss on the sale of a personal item is generally the difference between the amount you paid for the item (the purchase price) and the amount you receive when you sell it (the sales price).

For example, if you bought a refrigerator for $1,000 (the purchase price) and sold it for $600 (the sales price), you have a loss of $400. $600 sales price – $1,000 purchase price = ($400) loss amount.

On the other hand, if you bought concert tickets for $500 (the purchase price) and sold them for $900 (the sales price), you have a gain of $400. $900 sales price – $500 purchase price = $400 gain amount.

The gain on the sale of a personal item is taxable. You must report the transaction (gain on sale) 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. See Publication 551, Basis of Assets, for guidance in determining your basis.

The gain on the sale of a personal item might be reported on a Form 1099-K. If you receive a Form 1099-K reporting the $900 that you received from the sale of your concert tickets that cost you only $500, you must report the gain on Form 8949 and Schedule D.

The loss on the sale of a personal item is not deductible. For calendar year 2022 tax returns, if you receive a Form 1099-K, for the sale of a personal item that resulted in a loss, you should make offsetting entries on Form 1040, U.S. Individual Income Tax Return, Schedule 1, Additional Income and Adjustments to Income, as follows:

Report your proceeds (the Form 1099-K amount) on Part I – Line 8z – Other Income, using the description “Form 1099-K Personal Item Sold at a Loss.”

Report your costs, up to but not more than the proceeds amount (the Form 1099-K amount), on Part II – Line 24z – Other Adjustments, using the description “Form 1099-K Personal Item Sold at a Loss.”

In the example of the refrigerator sale above, if you received a Form 1099-K for $600 for the refrigerator for which you originally paid $1,000, you should report the loss transaction as follows:

Form 1040, Schedule 1, Part I – Line 8z, Other Income. List type and amount: “Form 1099-K Personal Item Sold at a Loss…. $600” to show the proceeds from the sale reported on the Form 1099-K

and,

Form 1040, Schedule 1, Part II – Line 24z, Other Adjustments. List type and amount: “Form 1099-K Personal Item Sold at a Loss…. $600” to show the amount of the purchase price that offsets the reported proceeds. Do not report the $1,000 you paid for the refrigerator because the loss on the sale of a personal item is not deductible.

Read the rest of the IRS frequently asked questions here

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This document contains general information only and is not a substitute for accounting, tax, or any other professional advice or services. The information provided is considered accurate at the time of publishing and will not be updated with new regulation requirements.

Comply Connect May 2024 – Issue 11

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