Ep. 56 | Form 1099-K Updates (Why You May Receive One)
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Speaker 2:Hey, everybody, and welcome back to the Teaching Tax Flow podcast episode 56 today. We are gonna discuss what changes have been made to a ten ninety nine k, what that is, and even why Chris from our team refers to it as the Swifty rule. That's right. How this relates to Taylor Swift concert tickets. So before we do it, let's jump into it, but let's take a moment and thank our sponsor.
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Speaker 2:Today, we're gonna talk about ten ninety nine k. So if you're not familiar with that, look it up a little bit. It's not a new form that is put out by the IRS. It really just is an old form with a fresh coat of paint, some new thresholds in here. Chris Pacquero, welcome back to the party, my man.
Speaker 2:How we doing today?
Speaker 3:I am doing great. How are you doing?
Speaker 2:I am doing fantastic because I know the example that you are gonna use to describe the updates to a ten ninety nine k. So you guys don't wanna hear this from me because I'll just make corny jokes and make it very confusing all day. So, Chris, describe to us really what changes we've seen on a ten ninety nine k here really in in very recent times. This isn't isn't an old change. This is something new.
Speaker 2:Well, John, the reason you're gonna like the example I'm using is because you are
Speaker 3:a mega Swifty. Oh, you know it, man.
Speaker 2:Know that. It's well, now now the whole world knows it. Between me being a Taylor Swift fan and a Nickelback fan, you know, it's I kinda get harassed on both sides of the fence. Actually,
Speaker 1:I yeah.
Speaker 2:I don't know what fan I am anymore. All I know is I am a die hard fan of the Teaching Tax Flow podcast, and so should you, PSA.
Speaker 3:Thank you everyone for joining us. We know that there is going to be an influx of ten ninety nine k forms issued in 2024 for the 2023 tax year. I call it, when I speak, at events, the the SWIFTI rules, and I'm gonna tell you why we talk about it like that. We're also gonna talk about remedies and and really realistic ways to handle, receiving one of these forms because it's gonna happen. But as John said, the ten ninety nine k has been around a while.
Speaker 3:We are very familiar with different type of ten ninety nine forms like NEC or MISC or even a ten ninety nine interest form, in general, ten ninety nine is issued when someone pays someone or someone receives income that is not employment related. That's kind of the the 30,000 foot view of what a ten ninety nine is.
Speaker 2:And would a would a ten ninety nine k actually be the form who's somebody who, who was operating, like, a property on Airbnb or VRBO? Is that similar to what they would receive, or is this something different?
Speaker 3:Yes. They could depending on what their third party payment provider is. So if they're getting if they're using Stripe or Venmo, they would receive that. If someone is managing a property for somebody else, they'll receive a different type of $10.99 that indicates rent. But if you list your property on Airbnb, v VRBO, I mean, you know, quite frankly, teaching tax flow, we our subscribers, our premium subscription, the revenue from that goes through Stripe.
Speaker 3:So we will we'll receive a $10.99 k, for that. So, yeah, it it that could very well happen. The $10.99 k has been around a lot quite a while, and why why do we have this rule? Well, congress feels that there's a lot of money being made out there, that is not reported, and they're right. They're they're that's called the tax gap.
Speaker 3:Now there's a lot of debate as to was the remedy, meaning the American Rescue Plan Act and the change to the ten ninety nine k rule, really appropriate or was it a little bit of a a bit of an overstep, if you will? So, originally, if you were operating, selling things online, using, etcetera, etcetera, you know, let's say selling things on eBay or using Stripe or PayPal. Previously or before the American Rescue Plan Act, the transaction payments had to exceed $20,000 and over 200 transactions for you to be issued a ten ninety nine k. Now, I'm gonna step back. If you are running a business and you have revenue from the business, regardless if you received the ten ninety nine k or not in the past, you're required to report all your income.
Speaker 3:This is just let's talk so I'm gonna throw that out there. But the ten ninety nine ks reporting, unless you did $20,000 worth of of transactions and 200 total transactions, your third party payment providers, I k a Apple Pay, Cash App, PayPal, Venmo, Stripe, were not required to issue you a ten ninety nine pay, nor were credit card payments. So if you let's say you operated a retail store, most retail stores receive a $10.99 k from their their credit card companies when they're processing third party, you know, like, third party network providers and whoever you're using to, to process credit card transactions for.
Speaker 2:And this could then this will, I should say, can it would directly affect, like, we have a bunch of friends here here in town who, you know, they're kind of hobby hobbyist crafters who sell a lot of stuff on Facebook marketplace. Right? And their preferred provider or I should say payment processor is usually Venmo. Right? So what what we're saying here is previously, they could in a sense sell $19,999 and kind of, you know, giving the teaching tax flow disclaimer that we're here to legally and ethically reduce the taxes you pay over your lifetime.
Speaker 2:It is their decision if they actually wanted to claim that $19.09 99 previously because nobody else would say anything, right, in a sense?
Speaker 3:I mean, they they should if they're if well, that's a whole other issue between hobby hobby rules and business income. So if you're making income, you're supposed to be purporting that on your tax return. This really comes down to I think, with the big issue with the ten ninety nine k is gonna be that there are a lot of people that are gonna receive this form that shouldn't have, that are not really in a business. And it was it's an unintended consequence. So let's walk work through some of the rules and the changes.
Speaker 3:So before, again, it had you had to have $20,000 worth of income and 200 transactions for you to be issued at October. That was set to change in 2022. In well, it's our opinion is in in general as a tax professional community is that the IRS doesn't like this rule because the the the the enforcement of it, is going to be arduous. Right? And this is a rule set out by congress.
Speaker 3:So that because there's such a paperwork crunch and report the reporting requirements for this rule are a burden, it was bumped to 2023. So, okay, this was supposed to take effect 01/01/2022. It got bumped to 01/01/2023. So everyone a year ago was like, I'm taking a deep breath. Well, guess what?
Speaker 3:Now we're at the end of 2023. And so now we're the rule takes effect, and we're gonna see a lot of people receive ten ninety nine k's this year. So let's talk about the types of payments reported on ten ninety nine k's. Those are gonna be debit card payments, credit card payments, store value cards, like gift cards from from retail stores, third party network payments. You know, pay payment providers are people like eBay, Etsy, Amazon, Facebook Marketplace.
Speaker 3:So, John, let's say you have an old rocking chair that you saw on Facebook Marketplace and the new threshold, which I just to me that I failed to manage, failed to failed to mention, went from $20,000 to be issued a $10.99 k to $600. So what if you just sold some furniture you had laying around the house on Facebook mark Facebook Marketplace for $605? Guess what's gonna happen? You're gonna get a ten ninety nine k for $605. Now are you in the business of selling things on Facebook Marketplace or Amazon or Etsy or eBay?
Speaker 3:You're probably not.
Speaker 2:Not one bit, and you wouldn't want it. And I started to write down too some other examples, Chris, that tell me if tell me if he's kinda fall into it. I mean, you gave that a great example of the Swifty rule, which I'll let you describe that one in detail because that's a a very real example. But some of the other ones too, like, that just come to mind is you might have a group of, say, students in a dorm that, you know, one person is in charge of going grocery shopping. All of a sudden that person from what this is gonna lead to is somebody's gonna get one of these forms.
Speaker 2:They're not gonna know what to do with it. They may choose not to do anything with it, and it's kind of a snowball effect of really just a stressful, I wouldn't say useless, but, unpopular form being issued, I think, might be the best way
Speaker 3:to put it. Right? Of of lowering the threshold for 20,000 to $600, I I make that make sense. Do I think it should be $6,600 for issuing the $10.99 a? Personally, no.
Speaker 3:I think that I think it should be probably, you know, 2,500 to $5,000 seems reasonable, but you nailed it. I've got tons of examples. I used the Swifty example, but let's just dive into it now since we we keep dangling that carrot. John, we know you're you're a certified Swifty. You go out, t t sizzles coming to Detroit, you get four tickets.
Speaker 3:Right? You buy them for whatever fair face value is is probably $700 for a Braun.
Speaker 2:Let's say Probably $440 a pop or whatever they're going for these days. Right?
Speaker 3:You buy the tickets for for $800 each. Okay? You you and your wife attend, and you invite a couple friends. Let's say you're a generous guy, and you don't wanna make money. You can you know you can go sell them online for double, triple the amount, but you're like, hey.
Speaker 3:These are my friends. I'm gonna just give me the $800 for the tickets. Like, most people, they transact using Venmo. They Venmo you the $1,600. You give them the tickets, guess what happens?
Speaker 3:You're gonna get a $10.99 k from Venmo. Same thing could happen with so there's some unintended consequences. Same thing could happen with the parent that's pooling money together to buy to sell Girl Scout cookies. How many times have you been walking out of the grocery store? Hey.
Speaker 3:We're selling popcorn for the Cub Scouts. We're selling cookies for the Girl Scouts. Oh, darn. I don't have you know, let me let me Venmo you $6. It's all in that person's personal name.
Speaker 3:Now all of a sudden, they have a ten ninety nine k in their name that is that is, troublesome, we'll say.
Speaker 2:That person I can only imagine what happens with, like, like, bar tabs. Right? Where somebody's like, oh, I'll get the next one. No. Just Venmo it to me.
Speaker 2:All of a sudden, you're, you're getting a couple, couple forms from different peoples. But yeah. Yeah. Like you said, there's there's almost an unlimited number of examples I think we can brew up, pun intended.
Speaker 3:So, again, so the $10.99 k itself, first the first thing is I'm almost certain it's gonna be sent to people electronically. Right? It's probably not gonna be mailed to you. So the first thing is making sure that if you received one or if you have a PayPal account, Venmo account, make sure you log in and and grab the $10.99 k if you think you're gonna be received one you're gonna receive one next year. It'll come in during January most likely of 2024.
Speaker 3:Do not ignore this. The form itself will probably get sent to you electronically. It'll identify how many what your gross sales were for the year and actually not and I shouldn't say sales because for some of you, you're not selling anything. You're just, you know Mhmm. John, I had Titan season tickets.
Speaker 3:We didn't get them this year, but the year before and if you sell tickets on Ticketmaster, Ticketmaster asks now for your Social Security number, and you will get a ten ninety nine k if you went over the $600. The form itself breaks down not only how many transactions there were, how much money was exchanged hands, but also the money that exchanged hands by months, which is another interesting factor.
Speaker 2:And it's you mentioned too, Chris, before we forget to to maybe give this little tidbit out there is, you know, that you mentioned that when they're sent electronically, I remember this, oh my gosh, probably ten years ago or so where some form started to be sent electronically and the subject line of the emails. I mean, they either got filtered out by spam or they just weren't exactly clear on what they're notifying you of. I feel like they've actually and and this a general term, a lot of organizations have done a better job of being more direct and like, hey. Your tax documents are now available. So if you see something like that, that's probably what you're alluding to is it's a form similar to this one that they have prepared for you.
Speaker 2:Correct? Exactly. So so here's here's some of
Speaker 3:the things that we're gonna be concerned with. Right? It's not a matter of when, but or if. When you receive a ten ninety nine k, the first question you need to ask yourself is, am I in a business? Is this a hobby?
Speaker 3:Is it investment income? Or is it personal income? And one other thing to consider is the $10.99 k will report your gross amount of money exchanged. It doesn't factor in or deduct any type of fees or expenses associated with that. So make sure you document those transactions, and we have to consider what happens if we, you know, get the because there's gonna be people that get a ten ninety nine ks's in error.
Speaker 3:There's gonna be people that that were doing something innocent. So I wanna run through just again, in the next couple minutes, some examples of situations so that if you're listening to this, it resonates with you or or someone you know, we have a lot of tax professionals that listen, and we also have a lot of taxpayers that listen how to handle something. So let's say, John, let's say you received a ten ninety nine k from PayPal for $2,000. And you're like, I don't even have a PayPal account. What the heck?
Speaker 3:Well, that's a problem. Right? Because IRS thinks you received $2,000 on PayPal. For all they know, you could have sold some of your baseball cards or your hockey probably hockey cards for you or your memorabilia. Right?
Speaker 3:So are you in the and you don't even have one. Well, in that case, obviously, you wanna contact PayPal and try to get that resolved, but there's other but the chances that PayPal is gonna resolve it in a timely fashion, and about that and you wanna have your tax return prepared or prepared on your own is is not is pretty slim. The other worry is identity theft. So in that case, what you're gonna do is you're gonna put you're gonna have to report. I said don't ignore it.
Speaker 3:You're gonna wanna report that $2,000 on your tax return, but then you're gonna wanna take it off the tax return as an adjustment because what we don't want to do is trigger something called the IRS CP 2,000 notice. What that means is that this ten ninety nine k wait to the IRS. You we have to address the ten ninety nine k in your tax return even if we put it on and and then take a deduction against it. So there's really no effect on your return or because we don't want IRS to say, hey. You made that $2,000.
Speaker 3:Hey. We want $600 a you know? Are you running a business? We want our $6,600 of tax. So there's And
Speaker 2:I know there's I know there's all these examples too. And and, Chris, I I would say this, you know, I'll ask this question that if you have nothing else to add to it, obviously, we could we could close out there. But if somebody does get one of these like you had mentioned, it's very important to report it, whether that's adding it and then removing it, obviously, in a different line. But for somebody who is, say, preparing their own returns, and this might be a a conversation for a later date in a little bit more detail, but, you know, how do they go about this? Because it seems like a lot of the DIY solutions, I shouldn't say solutions, DIY approaches to, you know, tax filing is you basically just check a box and put in a number, and it may not give you a very clear opportunity to adjust that, we should say.
Speaker 3:Correct. So let's talk through their what happens if you do receive one. The first thing you want to do is determine, is it correct? Should I have received this? If you shouldn't have received it, our first or you think it's incorrect, you should request that it gets corrected.
Speaker 3:Unfortunately, the yeah. In the real world, those things don't happen very quickly. So let's assume the $10.99 k you received was correct. Make sure that you'd identify what type of transactions that you you partook in. Right?
Speaker 3:Well, are they personal? Are they hobby? Are you in a trader business, or was this an investment? Okay. So in the example of the Taylor Swift tickets, John, if you had sold those tickets at a profit, that would be considered an investment and it would be reported as a short term capital gain.
Speaker 3:You'd get to deduct the cost of the tickets. You'd get to deduct the expenses related to transferring the tickets to someone, but you may have sold them to an unrelated party at quite a profit. I would I would sell that an an investment. So if it's a personal ex again, you have you gotta determine is it personal? You're gonna record it on schedule 89 or form eighty nine forty nine and schedule d.
Speaker 3:I don't wanna get too technical. Hobby, you're gonna report on schedule one. You're not allowed to take a loss. Trade or business goes on. Schedule most likely schedule c, or it could be schedule f if you're a farmer.
Speaker 3:It could be schedule e if you rent a own rental property, John. I know a lot of people pay their rent to their landlord using Venmo. That could that could just be rental income. Or investment could go on SCUT form eighty nine forty nine or schedule d. So, again, point is, if you receive the form, make sure it's correct and you actually receive that money, then work with your tax professional or jump in or defeating taxes private Facebook group and help get some guidance.
Speaker 3:You're right, John. If you're doing some DIY tax prep, unfortunately, you could pop the numbers in from your ten ninety nine k, and it just doesn't understand what it was for. And you might be paying tax on a
Speaker 2:lot of income that you shouldn't be. Absolutely. Absolutely. Well, Chris, thank you so much for going into this. I know this is something kind of a a hot topic in the world right now of tax.
Speaker 2:It's gonna be a lot of questions that surround this. So that being said, I know we're gonna talk about this probably a couple more times even before the end of the year comes up. But then, obviously, as the new year rolls around, we wanna make sure everybody is prepared for this, and really just very knowledgeable on different situations, different ways to go about it. It's not to be scared about. There there's a solution for everything.
Speaker 2:So that being said, thank you. Again, thank you for everybody for listening. Thank you everybody for these questions surrounding these ten ninety nine k's. I know there's a lot of them. So same time, same place, we will see you again next week here on the Teaching Tax Flow podcast.
Speaker 2:Hey, everybody. John Topolsky here from the Teaching Tax Flow team. Thank you for taking some time listening to this show as always. Great topic suggested to us by the community as we mentioned. But if you have any questions on these ten ninety nine k's, best place to do it is on the Defeating Taxes private Facebook group.
Speaker 2:Drop your questions in there. Best place to get a good, honest answer from a tax pro from fellow community members, that's the place you need to be there. If you're not, this is your private invite. Go to defeatingtaxes.com. Send it straight there.
Speaker 2:No excuses while you're not sitting with the cool kids. So that being said, we will see everyone here back on the Teaching Tax Full podcast next week.
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