1099 tax rules

[Jeeperz]

This is nothing new. It's been around for 3-4 years. I remember when everybody who sold on ebay etc... were having fits about it long before 2020. It's just never really been enforced. I don't think they will waste much time on the lower end of the spectrum. Although I will say as a business owner who does the right thing and pays taxes it's about time there was a crackdown. There are full blown businesses being ran through e commerce who pretend they are weekend warriors cheating us all. I run across it in my own profession. Unlicensed and uninsured businesses everywhere. Those are the ones who this will primarily be targeting.

Except with this, if you break down a tank and sell stuff and accept PayPal, you will be a target of the IRS, unnecessarily. Go ahead, fight that audit and see what it costs you or pay your fines they WILL levy on you

 

[BroccoliFarmer]

Awesome, looking forward to the post! It makes me wonder how much they're going to want to take from the 600 in sales. Glad to also know that we can write off shipping and stuff as a hobbyist.

Might be worth considering registering as a business? With all the salt/electric/water that goes into this hobby, might be good to be able to write a good amount of it off.

Thanks for the help!

It is. However, you still have to pass the tests to be considered a business. The biggest one to overcome is how much time you spend on the endeavor. Just calling yourself a business might not survive an audit.

 

[Jmp998]

It seems that one of the disadvantages of classifying your frag sales as a 'business' is that you would then be responsible for self-employment taxes (15%), whereas as I understand 'hobby income' would not be subject to the self employment tax. Is that correct?

I would imagine most of us have a regular W2 job that reflects our main source of income (and on which we and our employer pay FICA). If you then start a side 'business' selling coral frags, would you still be required to pay self-employment tax, or would the FICA withholding on your W2 income prevent/reduce the self-employment tax burden?

 

[blaxsun]

87,000 people is a lot. Lol.

Spend $8.7-billion to collect 1% of that in taxes!

 

[BroccoliFarmer]

Looks like everyone gets a 1 year reprieve on the 600 threshhold for Venmo and paypal payments.

IRS delays new tax-reporting rule on Venmo, PayPal payments over $600

A controversial new tax-reporting policy involving payments over $600 on e-commerce platforms like eBay and Etsy will be delayed by one year, the IRS said.

www.foxbusiness.com

 

[albano]

Looks like everyone gets a 1 year reprieve on the 600 threshhold for Venmo and paypal payments.

Wow, don’t know how you did it, but thanks!

 

[BroccoliFarmer]

Wow, don’t know how you did it, but thanks!

 

[MichaelReefer]

I just saw this too,and watched a video on it. Its pretty crazy and pathetic. Thats all that stimulas money coming back to bite everyone in the rears.

Any way for the Gov to take more money.

 

[mfinn]

Looks like everyone gets a 1 year reprieve on the 600 threshhold for Venmo and paypal payments.

IRS delays new tax-reporting rule on Venmo, PayPal payments over $600

A controversial new tax-reporting policy involving payments over $600 on e-commerce platforms like eBay and Etsy will be delayed by one year, the IRS said.

www.foxbusiness.com

I saw that this morning on my local news web page.
That's good news for those of us that need help with figuring out the whole tax thing.

 

[BradB]

A hobby means no effect on taxes, either from selling corals, or expenses. A business means full taxes on income (including self employment) but writing off all expenses running your tank and capitalizing large purchases. There are no rules for "gray areas" but it can reasonably be expected that you don't owe more than if it were either a business or hobby.

I don't know if I've ever taken anything other than cash, but I'd probably just ignore this. If they gave me a hard time, I'd refile everything as if it were a business. You could also go the other way, try to write everything off, and then when the IRS comes back and tells you can't because it is a hobby, you don't have to worry.

Contrary to popular belief, no one is going to spend their life in federal prison over a legitimate disagreement on less than a thousand dollars owed, and no decent IRS agent is going to want to spend weeks auditing anything like your fish tank. In my limited experience with the IRS, they are friendly, helpful, but short handed and concerned with their own time.

 

[mfinn]

In my limited experience with the IRS, they are friendly, helpful, but short handed and concerned with their own time.

As in all walks of life you find good honest people and then the opposite.
In my experience with the IRS over a 14 year period, I ran into some of the most petty, mean spirited people I have ever seen.
I will say that my troubles with them were completely my fault in the beginning, but got zero help from them and only grief over that period of time.

 

[Lbrdsoxfan]

As in all walks of life you find good honest people and then the opposite.
In my experience with the IRS over a 14 year period, I ran into some of the most petty, mean spirited people I have ever seen.
I will say that my troubles with them were completely my fault in the beginning, but got zero help from them and only grief over that period of time.

Likewise, as a small business owner, I've gotten no love since 2010. You wanna talk about the harbinger of evil, the franchise tax board of CA... they are the epitome of evil.

 

[Jay Hemdal]

I will be writing up a full posting about the tax rammifcaitons of selling corals. I do this every year and provide people some information. Ultimately, what you can write off is dependant upon if this is a hobby or a business. If you are a hobby, you can write off direct expenses (postage, shipping container and how much you paid for the coral). If you are a trade or business (overly simplistically stated as spending more than 750 hours a year on the business), you can write off direct costs as well as indirect (salt, electricity, mortgage, equiptment). Again..i will write up a better article on this later in the year.

I wonder if I will get an article contributor badge?

I'm interested in hearing more about the differentiation between a hobby business and a business. I never heard of the 750 hour criteria before, except for in real estate. I thought you needed to just objectively meet (not just rationalize) these IRS criteria:

Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.

Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.

Whether they depend on income from the activity for their livelihood.

Whether any losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.

Whether they change methods of operation to improve profitability.

Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.

Whether the taxpayer was successful in making a profit in similar activities in the past.

Whether the activity makes a profit in some years and how much profit it makes.

Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.


Jay

 

[RedoubtReef]

As we are fast approach the end of the year, it means it's 1099 time. For all hobbyist and vendors who buy and sell corals, be aware that paypal, venmo, and other online payment solutions will be sending out 1099-Ks's if you receive more than $600 in payments. I was reading an article the other day that this is one of the areas the IRS expects that their new 87,000 agents will be focusing on.

Will PayPal report my sales to the IRS? | PayPal US

Learn how PayPal is required to report sales above a threshold and also know the 1099-K requirements.

www.paypal.com

https://help.venmo.com/hc/en-us/articles/4407389460499-2022-Tax-FAQ

Switch to Gab Pay and stop supporting PayPal and its corruption.

 

[BroccoliFarmer]

I'm interested in hearing more about the differentiation between a hobby business and a business. I never heard of the 750 hour criteria before, except for in real estate. I thought you needed to just objectively meet (not just rationalize) these IRS criteria:

Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.

Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.

Whether they depend on income from the activity for their livelihood.

Whether any losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.

Whether they change methods of operation to improve profitability.

Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.

Whether the taxpayer was successful in making a profit in similar activities in the past.

Whether the activity makes a profit in some years and how much profit it makes.

Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.


Jay

I am slacking and owe this..but your second point is the point about the 750 hours 'Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.' I have to find the flush language but this is the general standard that CPAs use to justify the time and effort for a business. It is not a hard and fast rule, but is the general guideline as to what constitutes substantial time and effort and it was stolen from the real estate section of publication 925. One might also use the 500 hour test of the passive activity loss rules to determine if it is a trade or business. Unfortunately, there are multiple factors and it is a complex decision. By providing simple rules, people can understand them easier...hence tax people try to simplify the process in an over simplified, yet safe advice..even if not 100% on the nose.

 

[BroccoliFarmer]

I saw that this morning on my local news web page.
That's good news for those of us that need help with figuring out the whole tax thing.

Ultimately, the 1099-K was just a compliance mechanism to hold people accountable for accurately reporting taxable income. IRC Section 61 defines gross income as: Except as otherwise provided in this subtitle, gross income means all income from whatever source derived.

Roughly stated, everything that you gain in value is technically income and is taxable unless specifically exempted by law or statute. So although people have received a reprieve on being reported to the irs through 1099-k, it actually does not alleviate the requirement that people report the income. We can be honest that the irs is not going to find out or chase down people making a few hundred bucks here and there...but it does mean it should be reported by law.

Again..i am just a messenger providing information. Please dont make this more political. Many people just dont understand the tax code and I am trying to provide some reasonable education for those that do not know but wish too.

 

[Jmp998]

Any comment on the impact of ‘hobby’ vs. ‘business’ on requirement for self employment taxes, FICA, etc?

 

[BroccoliFarmer]

Any comment on the impact of ‘hobby’ vs. ‘business’ on requirement for self employment taxes, FICA, etc?

Correct.

Hobby income is not subject to the self employments taxes, just ordinary income taxes. But it also has to do with what is deductible against any income generated from the hobby.

 

[Reeferbadness]

Actually, the IRS just announced delays rule change for people who get paid on Venmo, Etsy, Airbnb and other apps - which should help people get their things sorted (mostly for complex payments that involve fees, etc in addition to charges like for an AirBnb). Here's a link to a CNN story on this from today https://www.cnn.com/2022/12/23/investing/irs-delays-threshold-increase-for-business-transactions

 

[Jay Hemdal]

I am slacking and owe this..but your second point is the point about the 750 hours 'Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.' I have to find the flush language but this is the general standard that CPAs use to justify the time and effort for a business. It is not a hard and fast rule, but is the general guideline as to what constitutes substantial time and effort and it was stolen from the real estate section of publication 925. One might also use the 500 hour test of the passive activity loss rules to determine if it is a trade or business. Unfortunately, there are multiple factors and it is a complex decision. By providing simple rules, people can understand them easier...hence tax people try to simplify the process in an over simplified, yet safe advice..even if not 100% on the nose.

I'm still unsure of any time limit. Hypothetical: I once almost bought an apartment building. I was going to have it professionally managed. I would have deducted operational expenses for that, even though I might only spend a hundred hours a year managing it...

I also had a tax advisor tell me that there is an unwritten rule out question - is the activity something people do for fun? That will make it a hobby. That's why comic book collectors, photographers and reef aquarists all may have a challenge showing that what they do isn't a hobby. Snow plow operators have an easier time of it, few people do that for fun (grin).

Jay