The Internal Revenue Service (IRS) has recently issued updated guidance on the 1099-K forms. They will be sent out by online payment services such as Venmo and PayPal next tax season.
Initially planned for this year’s tax season, the implementation of sending out these forms to taxpayers has been delayed. They will now only be sent out by electronic transaction companies if the total income exceeds $20,000. This is also true if there are more than 200 transactions.
You may expect to receive over $600 in transactions through an online transaction website in 2023. This means you will likely receive a 1099-K form. The updated guidance by the IRS outlines the process of reselling items through these services. It states that selling an item for less than you paid for it will not be taxed. This is only true if you can prove the original purchase price. However, you also cannot claim it as a loss.
For example, if you sell a personal item at a loss, like a refrigerator bought for $1,000 but sold for $600, the net loss of $400 should be reported on Form 1099-K, Personal Item Sold at a Loss. On the other hand, if you buy concert tickets for $500 and resell them for $900, you gain $400 in taxable income. But if you also sold a personal item at a loss, the two can negate each other, resulting in no tax owed for selling the concert tickets at a profit.
How to keep track for the IRS
It is essential to keep receipts for significant items you plan to resell, as this can make a significant difference in taxable income. If records are lost, destroyed, or unavailable due to circumstances beyond your control, the IRS may accept reconstructed records or oral testimony during an audit.
The updated guidance is available on the IRS website. It provides a comprehensive overview of the process and requirements for online payment services and taxpayers alike.
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