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If you accepted payments through apps like Venmo or PayPal in 2022, you can get Form 1099-CZKthird-party network earnings report, early 2023. However, according to financial experts, there is still time to reduce your tax liability.
“No change to income taxability,” the IRS noted in a note third release about preparing for the upcoming tax season. “All income, including from part-time work, side work or sales is still taxable,” the agency added.
Before 2022, you might have received a 1099-K if you had more than 200 transactions totaling over $20,000. However, the US Rescue Plan Act of 2021 has reduced the threshold to just $600, and even a single transaction can trigger the form.
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While the change targets business transactions, not personal transfers, experts say it’s possible some taxpayers will receive the 1099-K by mistake. If this happens, the IRS requires contacting the entity that issued or adjusted your tax return.
Either way, the IRS urges “early filers” to make sure they have all tax forms, including 1099-Ks, before submitting their tax returns.
Whether you’re working with a professional or filing your own taxes, you need to be ready, says Albert Campo, a certified public accountant and president of AJC Accounting Services in Manalapan, New Jersey.
Here’s what to know about reporting 1099-K payments on your return and how to reduce your tax liability.
How to report a 1099-K payment and claim a deduction
You can report 1099-K payments as income on OLD schedule of your tax return, which includes gains and losses for sole proprietorship businesses.
You’ll have the opportunity to deduct expenses, known as business deductions, on Part II of Schedule C, including things like the cost of your product, the portion of internet and phone bills used for work business, travel, can be yours. home office and other costs.
Jim Guarino, a certified financial planner, CPA and executive director at Baker Newman Noyes in Woburn, Massachusetts, says you should start looking at possible business deductions now — including including collecting your receipts for each item — to get organized before tax season begins.
If you are paying for your own health insurance, you also have the opportunity to deduct the cost of your insurance from Time to donate 1, which reduces your adjusted gross income, says Guarino. This will not apply if your employer offers you health insurance.
Consider a retirement account for your business
Another way to reduce your tax liability is to open and contribute to a self-employed retirement plan, which is also reported as “income adjusted” on Schedule 1.
One option is one Single 401(k)includes a participant and their spouse, and allows employees to defer tax payments by December 31 and employer contributions due.
The important part is making sure that the paperwork or documentation is established at the end of the year.
Jim Guarino
Managing Director at Baker Newman Noyes
“It is important to ensure that the paperwork or documentation is established by the end of the year,” said Guarino. If you’re confused about setting up a plan or how to calculate your employer’s contributions, you should talk to a tax professional, he says.
Of course, if you haven’t yet up to your workplace 401(k)There may still be time to increase contributions to your last paycheck or two for 2022, but “time is of the essence,” says Guarino.
In addition, you have a tax deadline on contributions to your personal retirement account before taxes, which can also qualify for the deduction.
Keep personal and business transactions separate
When starting a business, tax experts say to avoid “mixing” personal and business income and expenses by separating them — and 1099-K income is no exception.
Campo suggests opening another bank account and credit card and using separate third-party payment network accounts for business transactions “to make your life a lot easier.”
Here’s why: If you get a 1099-K for $10,000 and only $5,000 applies to your business, you’ll need to prove the remaining $5,000 is for a personal transfer through savings account. record keeping, he said.
“It creates more of a burden on taxpayers,” says Campo, noting that it is better to separate personal and business accounts because “it really gets cut and dried.”
Campo warns that it’s important to keep receipts for any business expenses you plan to deduct on Schedule C. In the event of an audit, the IRS will not accept a credit card statement as support. . The agency wants to see copies of your receipts that include each business expense.
