Form 1099-K, Payment Card and Third-Party Network Transactions, is an IRS form that is used to report certain payment transactions.
If taxpayers receive a Form 1099-K, they should use that information with their other tax records to determine their correct tax liability. Taxpayers must report all their income on their tax return unless it’s excluded by law, regardless of whether they receive a Form 1099-K.
Taxpayers will receive Form 1099-K for business transactions, including income from:
• A business the taxpayer owns.
• Self-employment.
• Activities in the gig economy.
• The sale of personal items and assets.
Money received as a gift or for reimbursement does not require a 1099-K. Taxpayers can minimize the chance of an error by asking friends or family members to correctly designate that type of payment as a non-business-related transaction. The taxpayer should also make a note of what the payment was for and who sent it. Good recordkeeping is key.
What to do when a Form 1099-K is incorrect
Some taxpayers may have received a Form 1099-K for the sale of personal items, or Form 1099-K may have been issued in error – such as for transactions between friends and family, or expense sharing.
If the information is incorrect on the Form 1099-K, taxpayers should contact the issuer immediately. The issuing organization’s name appears in the upper left corner on the form. Taxpayers should keep a copy of all correspondence with the issuer for their records.
If a taxpayer receives a Form 1099-K in error and the taxpayer cannot obtain a corrected Form 1099-K, the taxpayers should follow the IRS’ updated guidance at Understanding Your Form 1099-K.
1099-K reporting threshold for tax year 2023
The American Rescue Plan of 2021 changed the reporting threshold requirement for payment apps, also known as third-party settlement organizations. The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023.
• The old threshold was $20,000 and 200 transactions per year. This applies to tax year 2022 and prior years.
• The new threshold is more than $600. This applies to tax year 2023 and future years.
The threshold change means some people may receive a Form 1099-K who have not received one in the past. There are no changes to what counts as income or how tax is calculated.
Tag: self employed
Whether someone travels for work once a year or once a month, figuring out travel expense tax write-offs might seem confusing. The IRS has information to help all business travelers properly claim these valuable deductions.
Here are some tax details all business travelers should know
Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day’s work and they need to sleep to meet the demands of their work while away.
Travel expenses must be ordinary and necessary. They can’t be lavish, extravagant or for personal purposes.
Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.
Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America.
Deductible travel expenses include:
• Travel by airplane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business.
• Lodging and meals.
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.
Self-employed individuals or farmers with travel deductions
• Those who are self-employed can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).
• Farmers can use Schedule F (Form 1040), Profit or Loss From Farming.
Travel deductions for the National Guard or military reserves
National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty.
Recordkeeping
Well-organized records make it easier to prepare a tax return. Keep records such as receipts, canceled checks and other documents that support a deduction.
Do you client have a “side hustle” going on in addition to their full-time job? If you qualify, you may deduct certain expenses incurred by the self-employed business, including costs attributable to your vehicle.
The recent Tax Court case Gonzalez, TC Summary Opinion 2022-13, 7/18/22 found that it is indeed OK to deduct vehicle expenses related to a side-gig, as long as the filer follows strict rules.
Generally, expenses relating to use of a car, van, pickup or panel truck used for business are deductible. For example, if they drive their own passenger car to visit clients or customers, they may write off the portion of their vehicle’s costs that is attributable to business use, subject to some special limits. If they use their car 80 percent for business, they can deduct 80 percent of the costs.
The vehicle expenses are deductible under one of two methods:
1. Standard mileage rate: This is a flat rate adjusted by the IRS at least annually. For 2022, the deduction is 58.5 cents per business mile for the first half of the year and 62.5 cents for the second half. Also, they can add in business-related parking fees and tolls.
2. Actual expenses: Alternatively, they can deduct actual expenses based on the percentage of business use. This includes gas, oil, insurance, repairs, licenses, tires, etc., plus a generous depreciation allowance.
The actual expense method often provides a bigger deduction than the standard mileage rate. However, they must keep receipts, invoices and other documentation to show costs and establish the identity of the vehicle for which the expenses were incurred. For depreciation purposes, they must show the original cost of the vehicle and any improvements, as well as the date it was placed in service.
The IRS has issued detailed regulations covering the substantiation of vehicle expenses under the actual expense method. The best way to secure a deduction is to keep a contemporaneous log or comparable record of expenses and business use.
Facts of the new case: The taxpayer, a resident of California, had a full-time job at Stanford University. After moving to Palo Alto, she started a small clothing design business in Los Angeles.
During the year at issue, the taxpayer traveled to a patternmaker workshop in Los Angeles and Inglewood in southern California approximately every other weekend. She made the 800-mile round-trip by car. Although the taxpayer stayed with family and friends in the area during these trips, the primary purpose of the travel was business-related.
At trial, the taxpayer submitted a mileage log detailing the dates traveled, distances traveled and the purpose of each trip. She also submitted vehicle service receipts corroborating the miles driven. The taxpayer testified credibly as to the business nature of her trips.
End of the road: The Tax Court determined that the taxpayer has satisfied her burden of proof for substantiating vehicle expenses. Accordingly, it approved a deduction of more than $12,000 for vehicle expenses for the year at issue.