The IRS has delayed implementation of the new $600 1099-K requirements. Originally set to take place this tax season, the IRS will now push it back to next year. This will impact all 2023 activity, so you should be aware as we start the year how this could impact you. The new $600 threshold for third-party payment platforms only includes payments on these platforms that are marked as for goods and services. These do not include personal payments to friends and family.
The IRS has issued a guide to help you determine whether your side gig is actually a hobby or business. The difference can be critical for the tax treatment of your activities. Below are important questions to ask yourself in making these determinations.
- Is the activity conducted like a business?
- Are a complete and accurate books and records maintained?
- Is the activity handled in the same way as similar profitable activities?
- Does the taxpayer change their methods of operation to improve profitability?
- Is the activity advertised or promoted?
- Is there work done to secure the necessary suppliers or products?
- What is the taxpayer or their advisors’ expertise in the activity?
- Has there been extensive study of its accepted business, economic, and scientific practices?
- Are there accepted business practices or advice of experts used as the activity is pursued?
- Is the activity the main source of income for the taxpayer?
- How much personal time and effort is spent on the activity?
- Particularly if the activity does not have personal or recreational aspects
- Is the activity pursued on a full-time or part-time basis?
- Are other competent and qualified persons employed to perform the activity?
- How much personal time and effort is spent on the activity?
- Has the taxpayer made or expect to make a profit?
- Has the taxpayer engaged in similar activities in the past and converted them from unprofitable to profitable enterprises?
- Is there an intention to profit from appreciation in the value of assets used in the activity?
- Is the activity profitable in some years?
- Is there an occasionally small profit from the activities that is offset by large investments or losses in other years?
- Has there been substantial profit from the activity?
- Could there be substantial ultimate profit?
- Do any losses from the activity fall beyond the taxpayer’s control or are they normal in the startup phase of their type of business?
- Do the losses continue beyond the period which would be necessary to bring their activity into profitable status?
- Are there market conditions beyond the control of the taxpayer causing the loss?
- Has there been a series of years in which there is a profit?
- Does the activity have elements of personal pleasure or recreation?
- Are there personal motives for doing the activity?
- Does the activity lack appeal other than profit?
At Malloy, Montague, Karnowski, Radosevich & Co., P.A. (MMKR), we stay up to date on the ever-changing tax world. If you concerned how your side gig might be classified for tax purposes, call our team today to schedule a consultation with one of our accountants.
