LANSING, Mich. (WLNS)— The COVID-19 pandemic has brought a surge in consumers selling their products online.
Currently, smaller businesses are operating on Etsy, eBay, and even Amazon. Although online business is a positive way to boost our economy, you could end up owing money to the Internal Revenue Service (IRS).
In previous years, sellers have usually been issued a 1099k form for taxation purposes. However, this year due to a provision in the American Rescue Plan Act the federal threshold for issuing a 1099k will drop to only $600.00 with no minimum transaction level.
When online businesses sell over $600.00 on a single website platform this won’t necessarily mean you could be taxed on each area, but as a business operator, people will need to apply this to their next tax return in early 2023.
WHAT IS A 1099K FORM
According to the IRS, a 1099k form includes the gross amount of all reportable payment transactions a consumer made throughout a year. The IRS stated on their website you can receive one 1099-K from each payment settlement entity received by reportable payment transactions. The IRS defines a reportable payment transaction as a payment card or third-party network transaction.
This year, if you decide to sell your business your 1099-K form might even include payments for transactions made before they were purchased, or after you sold your business.
The IRS website also says in order to get a 1099-K an individual will need to give them their social security number.
WLNS Samana Sheikh spoke with Asif Vadaria, a certified accountant, who helps clients in the Midwest. He explained basic information on how online sellers have to make sure they take care of individual sales tax. Vadaria says sales tax could be every month, every quarter, every year depending on how much the person is selling online.
“The second tax is the income tax which is at the end of the year, they may have to pay quarterly, yearly,” Vadaria suggested. “It all depends on the money they are making.”
However, several people can make a mistake many times in thinking they do not owe taxes if they don’t receive their 1099-K, and they do not have to report it. Vadaria said people need to make their own recordings because the person who issued the form could have already sent it out to the IRS.
“Always make sure you record how much money you are saving,” Vadaria said, “and how much money you are making; regardless if you received a 1099 or 1099-K… if you receive it, or you don’t receive it you are supposed to report every dollar that you earn.”
For more information regarding taxes for 2020, and 2021’s tax season visit IRS.gov.