The American Relief Plan Act included an under-the-radar change that could impact a substantial number of individual taxpayers. As part of the Act, Congress has extended 1099-K reporting to $600 of total payments received. Anyone that sells on Ebay, Etsy or similar secondary market could now require a Schedule C when they file their 2021 Form 1040.
Form 1099-K is issued to taxpayers summarizing their total credit card receipts for goods or services on the year. Previously, Form 1099-K was only issued to sellers that received over $20,000 or had more than 200 transactions in a year. This limited Form 1099-K reporting only to taxpayers actually operating businesses. With this new change, any taxpayer that sells an item over $600, or multiple items totaling $600, will receive Form 1099-K at year-end. Typically, the IRS has looked for a Schedule C that coincides with the Form 1099-K to substantiate the “business” operations. In this case, taxpayers that have not previously filed a Schedule C will likely need to do so to avoid further scrutiny or notices.
The most common scenario here is going to be selling old personal items on eBay, Etsy, etc. that results in a loss to the taxpayer. Historically, these type of transactions were too minor to report as long as they resulted in a loss. Now, the IRS is going to want to see that income reported since there is a Form 1099-K showing the activity. This creates an additional recordkeeping responsibility to ensure everything is reported properly. The original purchase price would be used to offset the income; however the loss would not be recognized if the item was used personally. As such, there is no change in the net tax impact for reporting the transaction.
This change is minor in overall tax impact but could have a meaningful reporting impact on your individual tax return. At Malloy, Montague, Karnowski, Radosevich & Co., P.A. (MMKR), we stay on top of the ever-changing tax laws so that you don’t have to. If you are concerned about how this will impact your 2021 taxes, call our team today to schedule a consultation with one of our accountants.