If you are self-employed or own a small business, you may be familiar with Form 1099, which is a tax form used to report income other than salary or wages. You may receive a 1099 if you have received income from sources such as freelance work, rental property, or investment income.
However, starting in 2022, the Internal Revenue Service (IRS) has implemented a new rule requiring online platforms and payment processors, such as PayPal and Venmo, to issue Form 1099-K to individuals who receive more than $600 in payments through the platform in a calendar year. This means that if you use these types of platforms to sell goods or services online or receive payments for freelance work, you may receive a 1099-K even if you did not expect to.
If you receive a 1099-K and you did not expect it, there are a few steps you should take:
Review the form carefully: Make sure you understand what the form is reporting and where the income is coming from. It's possible that you may have forgotten about a small side hustle or freelance gig that you did during the year.
Check for errors: Review the form for any errors or discrepancies, such as an incorrect name or Social Security number. If you find an error, you should contact the issuer of the form and request a corrected version.
Report the income on your tax return: If the income reported on the 1099-K is correct, you will need to report it on your tax return. If you are self-employed, you will need to report the income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). If you are a business owner, you will need to report the income on the appropriate business tax form, such as Form 1120 or Form 1120S.
Keep good records: It's important to keep good records of your income and expenses throughout the year to make tax time easier. This includes keeping receipts, invoices, and other documentation to support your deductions.
In summary, if you receive a Form 1099-K and you did not expect it, you should review the form carefully, check for errors, report the income on your tax return, and keep good records. If you have any questions or concerns, reach out to us and we can get your on the right track!