The IRS has made significant changes to 1099-K reporting that could affect small business owners, freelancers, and landlords. If you accept payments through platforms like PayPal, Venmo, Square, or Stripe, these new regulations may impact you. Understanding how these changes work can help you avoid tax surprises and ensure compliance.
What is a 1099-K?
Third-party payment processors issue a 1099-K tax form to report payment transactions.
Has 1099-K Reporting Changed from the Previous Year?
Yes, the reporting threshold has changed significantly. Previously, a 1099-K was only required if a taxpayer had more than 200 transactions and earned over $20,000 in gross payments through third-party platforms. However, the new IRS regulations lower the threshold to just $600 in total payments, with no transaction minimum.
This means that many more small business owners, landlords, and even side hustlers may receive a 1099-K form in 2024 for their 2023 income, increasing the need for accurate tax reporting.
How Does the New 1099-K Requirement Impact Landlords?
Landlords who accept rent payments through platforms like PayPal, Zelle, or Venmo may now receive a 1099-K if their transactions exceed the $600 threshold. This means:
- Electronic payment platforms will report rental income directly to the IRS.
- Landlords must ensure they are accurately reporting rental income and deducting allowable expenses.
- Misreporting income could lead to penalties or audits.
If you are a landlord using electronic payment processors, now is the time to review your recordkeeping to ensure all income and expenses are well-documented.
Will I Get a 1099-K for Transactions That Are Not Business-Related?
This is one of the biggest concerns with the new rule. The IRS has clarified that personal transactions—such as splitting rent with a roommate or getting reimbursed for a dinner bill—are not taxable and should not be included. However, mistakes can happen. If you receive a 1099-K for personal transactions, you may need to work with the payment processor to correct it or report the discrepancy on your tax return.
How to Dispute Incorrect 1099-K Reporting
If you believe a 1099-K contains errors or includes personal transactions, follow these steps:
- Contact the Payment Processor – Reach out to the platform that issued the form and request a correction.
- Gather Documentation – Keep records of transactions that prove they were personal, not business-related.
- Report the Issue on Your Tax Return – If the issue isn’t resolved in time, work with a tax professional to explain the discrepancy when filing your taxes.
What Can I Do If I Haven’t Been Reporting Potentially Taxable 1099-K Income?
If you have been receiving income through third-party platforms but not reporting it, this change means the IRS will now have direct access to that information. Here are some steps to take:
- Review Your Past Income – Look at prior transactions to ensure you reported any taxable income.
- Keep Detailed Records – Maintain documentation for business-related and non-business transactions.
- File an Amended Return if Necessary – If you failed to report past income, consider filing an amended tax return.
- Consult a Tax Professional – If you’ve underreported income in the past, seeking expert advice can help you correct any discrepancies and avoid penalties.
What Steps Can Small Business Owners and Landlords Take to Stay Compliant?
To prepare for the new rules, business owners and landlords should take the following actions:
- Track Income and Expenses: Use accounting software or a professional bookkeeping service to keep accurate records.
- Review 1099-K Forms for Accuracy: Ensure that the amounts reported to match your records.
- Separate Personal and Business Transactions: Open and use a separate business account to prevent platforms from mistakenly reporting personal transactions as taxable income.
- Set Aside Money for Taxes: Increased tax reporting could lead to higher tax liabilities. Setting aside a portion of earnings can help prevent financial strain at tax time.
- Work with a Tax Expert: A professional can help you navigate changes, identify deductible expenses, and legally reduce your taxable income.
Potential Penalties for Non-Compliance
Failing to report income from a 1099-K can lead to serious consequences, including:
- IRS Audits: The IRS may audit individuals who fail to report 1099-K income.
- Penalties and Interest: Underreported income can lead to fines and interest charges on unpaid taxes.
- Loss of Deductions: If you don’t track and report expenses correctly, you may miss out on valuable deductions that could lower your tax bill.
How Scout Tax Can Help
Navigating new IRS regulations can be overwhelming, but you don’t have to do it alone. At Scout Tax, we specialize in tax preparation, advisory, and bookkeeping services tailored to small business owners and landlords. Whether you need help understanding your 1099-K form, identifying deductions, or ensuring compliance, our team is here to support you.
Don’t let tax changes catch you off guard—contact Scout Tax today to ensure your tax filings are accurate and optimized.
