USA Expat Taxes's blog : Unravel myths of Form 1099-K and explore the truth behind them
Form 1099-K is a tax form used in the United States of America to report payments received by businesses and individuals through payment card transactions and third party network transactions.
However, there are some of the myths surrounding the Form 1099-K, third party network transactions and payment card that can confuse the taxpayers.
Here are some of the myths and the corresponding truths behind them-
1. Myth - Only businesses receive Form 1099-K
Truth- The truth behind the above myth is that Form 1099-K can be issued to any individual, gig worker or freelancer who meets the transaction limit set by the IRS. This also includes people who sell goods online, independent contractors and freelancers who receive payment via third party networks.
2. Myth- All income reported on Form 1099-K is taxable
Truth- Form 1099-K does not report gross profits but the gross payments. This means the amount might also include refunds, cost of shipping and other fees that are not taxable income. It is important for the tax payers to calculate their actual net income by deducting allowable expenses and costs from gross payments mentioned in the form. Collaborate with a reputed American Expat Tax Services to get the actual net income.
3. Myth- There is no need to report income if one does not receive form 1099-K
Truth- Irrespective whether you receive Form 1099-K, one is required to report all the income on your tax return. This includes income from payment card transactions and third-party network payments even if they fall below the reporting limit or payment processor fails to send the form.
4. Myth- Form 1099-K is only for online sales
Truth- While online sales are common for receiving Form 1099-K, the form also covers all the payment card transactions and third-party network transactions including sales in physical stores, services provided and other transactions that meet the requirements.
5. Myth- Can Form 1099-K be ignored if received in error
Truth- In case you believe that you received Form 1099-K by mistake, do not ignore it and contact the issuer to rectify the information. Ignoring can cause hefty IRS penalties or fines. Address the issue and resolve any errors immediately by collaborating with professional American Expat Tax services.
6. Myth- Threshold for reporting is always $ 20,000
Truth- The threshold for reporting the Form 1099-K has changed over time. For the current year it is $ 20, 000 but might subject to change next year. It is therefore advisable to stay updated with the IRS guidelines to know the exact threshold for reporting.
Knowing the myths and the corresponding truths behind Form 1099-K can help tax payers navigate the obligations effectively while also ensuring compliance with the IRS tax laws.
Also Read Know the facts pertaining receipt of Form 1099-K in 2024