Form 1099-K is important for reporting your income from sources other than your salary to the IRS. While many businesses in Pompano Beach receive payments through third-party payment networks, not many of them know that they have to report the same to the IRS.
If you also own a business in Pompano and do not know how to report the payments received through a third-party payment network to the IRS, you can hire a Pompano Beach tax accountant to help you out.
What is a Form 1099
A form 1099-K is nothing but a record of transactions from a third-party payment network like Venmo or PayPal. The third-party payment networks complete and send copies of the 1099-K to the individual or business, IRS, and state. The sole purpose of a Form 1099-K is to ensure that people report their income and file tax returns.
- As of 2023, a third-party payment network must file and send a form 1099-K if it transfers $20,000 or more to a business or individual.
- The $20,000 threshold is an aggregate. This means that if various individuals or businesses transfer different amounts of money to you through a third-party payment network, totaling $20,000 or more, the payment network will send you a 1099-K.
- The IRS intends to lower the reporting threshold to $5,000 in 2024, which could be further reduced to $600 in forthcoming years.
- Form 1099-K is different from Form W-2, which reports the income paid to an employee.
Important things to know when reporting 1099-K income
Here are a few things one must take note of while reporting a 1099-K income:
- The 1099-Ks you receive might help you know how much payment you have received from your clients through third-party payment networks, but you’ll still have to file a Schedule C with your tax return to report and calculate the business income.
- There’s a chance that you might receive more than one form for the same income. For example, if a client sends you a payment of more than $20,000 using Venmo, they will send you a 1099-NEC. At the same time, Venmo will also send you a 1099-K for the same transaction. You must ensure that you do not report both documents reflecting the same income.
- Receiving a Form 1099-K does not necessarily mean paying taxes on the reported income, as you might have deductions that offset some or all of the income reported in the 1099-K.
