IRS Reporting Requirements Affecting Sellers of Goods and Services

Some of the more popular online marketplaces include eBay, Poshmark, Etsy and Facebook Marketplace. There are also a variety of apps, such as Venmo and Apple Pay, that are used for the payment of services as well as goods. The use of these third-party apps can result in the seller or service provider receiving a Form 1099-K, Payment Card and Third Party Network Transactions, that reports the gross amount of sales or income. A copy of Form 1099-K is also sent to the IRS so the IRS can match the information reported with what was reported on individual or business tax returns.

Personal payments from family and friends are not reportable on Form 1099-K because they are not payments for goods or services.

Will you receive a Form 1099-K in 2024?

For 2023, a Form 1099-K was required to be issued when the number of transactions during 2023 exceeded 200 and total sales exceeded $20,000. Since the threshold was relatively high, many individuals with a part-time sales or service business did not receive a Form 1099-K for 2023.

However, this is changing for 2024 because the IRS has dramatically reduced the criteria for third-party payers (e.g., credit card companies, online marketplaces and certain apps) to send out Forms 1099-K. For 2024, if you have sales of more than $5,000, you can expect to receive a Form 1099-K. Thus, it's important to understand what these forms mean and the documentation you may need to gather for reducing the income that is reported on these forms.

Do you owe taxes on the amounts reported on Form 1099-K?

Some taxpayers incorrectly believe they owe taxes on the amount reported on Form 1099-K, but that form only provides the gross number of payments received by the third-party payer. Just because a payment is reported on a Form 1099-K doesn't mean it's taxable. That form and other records are used to determine any actual tax liability.

However, if you are in the business of selling goods or services and don't receive a Form 1099-K, it doesn't mean you have no reportable income, since all income is taxable unless it is specifically excluded under the law. This includes payments you receive in cash, property, goods, digital assets or foreign assets. You are responsible for reporting all income from selling goods or services, regardless of the form of payment and regardless of whether you receive a Form 1099-K.

If you do receive a Form 1099-K, that form won't tell the IRS about the expenses you incurred in generating the income reported. It's up to you to keep track of those expenses and report them correctly on your tax return. For example, is an expense properly classified as a cost of goods sold or is it more appropriately classified as an indirect expense? Maybe you use a room in your house specifically for the activity for which income is reported. If you own the house, you might qualify for a depreciation deduction; or if you are renting, deducting part of your rent expense may be appropriate.

Thresholds for receiving a Form 1099-K in 2025

In 2025, the threshold for issuing a Form 1099-K is scheduled to go even lower (i.e., $600 with no minimum number of transactions).

So, you may want to reach out to our team now for help in navigating the extra paperwork necessary to ensure that, because of these changes, you have the documentation you need to write off all eligible expenses against the income that will be reported to you and the IRS on a Form 1099-K.