1099-K FAQs UPDATED FOR REVISED THRESHOLDS:
The Internal Revenue Service announced that it has updated its frequently asked questions for the Form 1099-K, "Payment Card and Third-Party Network Transactions."
The update to Fact Sheet 2022-41 follows the agency's recent announcement that it was pushing back the lowering of the reporting threshold to $600 from January 1, 2023, and will instead treat 2022 as a transition year, so companies are only required to report calendar year 2022 transactions with the old threshold of $20,000 and more than 200 transaction.
The FAQ offers definitions and guidance for reporting businesses, as well as providing information for taxpayers about what and whether they need to report. The IRS noted that while the rules for providing 1099-Ks may have changed, taxpayers' legal requirement to report income to the agency has not.
Updated guidance includes the treatment of the sale of personal items:
Q6. During the year, I sold my personal guitar for $800 on a social media platform's marketplace and I received Form 1099-K. I purchased the guitar several years ago for $3,000. How do I prove how much I paid if requested by the IRS? (added December 28, 2022)
A6. Generally, you should keep accurate records for personal items you may sell. If your records are lost, destroyed, or are not available due to circumstances beyond your control and your return is audited, examiners may allow you to present reconstructed records. Additionally, examiners may accept oral testimony when records do not exist. In this example you have a nondeductible personal loss. $800 sales price - $3,000 purchase price = ($2,200) loss amount. You can offset the proceeds reported on the Form 1099-K using some of your purchase price as shown here: Form 1040, Schedule 1, Part I – Line 8z, Other Income. List type and amount: "Form 1099-K Personal Item Sold at a Loss…. $800" to show the proceeds from the sale reported on the Form 1099-K. and Form 1040, Schedule 1, Part II – Line 24z, Other Adjustments. List type and amount: "Form 1099-K Personal Item Sold at a Loss…. $800" to show the amount of the purchase price that offsets the reported proceeds. Do not report the $3,000 you paid for the purchase because a personal loss is not deductible.
