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    1099-K Strategies

    As discussed in our post on December 27, 2022, the IRS issued Notice 2023-10, which delays the implementation date of the lower filing threshold for Form 1099-K, Payment Card and Third-Party Transactions.

    The threshold for filing Form 1099-K for the 2022 tax year was scheduled to be $600 for the year, but the IRS delayed this lower threshold, so that the prior threshold (more than 200 transactions and more than $20,000 total of transactions for the year) will continue to apply for the 2022 tax year. The lower threshold is now scheduled to be effective for the 2023 tax year.

    Practitioners should use this extra time to speak with clients about making sure that personal/non-business transactions are not included in a Form 1099-K for the 2023 tax year.

    Clients who use PayPal, Venmo or similar accounts to transfer funds for personal purposes, such as reimbursing friends for shared meals or for gifts, must indicate that such transfers are NOT for goods and services. This needs to occur when they are making the transfers. Otherwise, such transfers will be included in a Form 1099-K sent to the recipient.

    Interestingly, just before the IRS announced the deferral of the effective date, it updated its frequently asked questions for the Form 1099-K to include a recommended procedure for those who receive a Form 1099-K for non-taxable personal transfers.

    According to the IRS, it is best to request a corrected Form 1099-K. However, if the recipient is unable to get a corrected Form 1099-K, the recipient should first include the income reported on the Form 1099-K on line 8z (other income) on Schedule 1, Part I of Form 1040. They should then make an offsetting deduction on line 24z (other adjustments) on Schedule 1 Part II of Form 1040. Both items should have the caption “Form 10999-K Received in Error.” In this way, the amount reported on Form 1099-K will match what is reported on the return, but the offsetting deduction in Part II results in a net zero effect on reported income.

    For amounts reported on Form 1099-K that represent income for the recipient, the income should be properly included in the recipient’s gross income.

    The information provided herein is provided with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional service. As such, M + O = CPE, Inc. and the author disclaim any responsibility or liability for the information supplied herein or the application of said information.