Podcast: Can I Deduct That? Tax Tricks for Influencers

When you’re making money on a platform such as TikTok, Instagram or YouTube, filing your taxes may feel a bit daunting. Our Friends are here to help! Join Daniel Thrall and Lauren Thomas for another episode of Friends with Tax Benefits, a show where money talks – but we’re speaking your language!

In this episode, Daniel and Lauren learn about the life of a creator. Influencer coach, Lissette Calveiro, joins to share financial tips for the self-employed. Lissette’s own experience of going viral inspired her to help others facing similar money challenges and she has developed a wealth of knowledge that she passes on to the creators she works with, and now with us!

In the second part of the episode, the friends discuss Form 1099-K and what it means for small business taxes, self-employment taxes and everyday taxpayers. That’s because the Internal Revenue Service (IRS) recently updated the rules — so what do you need to know? TurboTax Expert Diana Castro walks you through the 1099-K form and details what you can and can’t deduct from business expenses on your taxes. 

No matter what your questions are, you’ll find answers in the podcast and right here. Read on to learn more about Form 1099-K for tax year 2022 and beyond.

The views, information or opinions expressed during the Friends with Tax Benefits podcast series are solely those of the individuals involved and do not represent those of Intuit, TurboTax or any of its brands. The primary purpose of this podcast series is to educate and inform. This podcast series does not constitute financial, legal or other professional advice or services.

A Quick Guide To Tax Form 1099-K

IRS Form 1099-K is the document that tracks income from third-party methods. This includes everything from a single credit card to a host of online payment apps. 

Maybe you’ve never received Form 1099-K before and just found one in your mailbox — or maybe you’re wondering whether it’s changed. Either way, it’s helpful to brush up on the basics and understand exactly what to expect this coming tax season.

What Does Form 1099-K Look Like?

In many ways, Form 1099-K looks similar to other documents that contribute to your tax return. For example, it has your tax identification number, state identification number and gross income.

However, that’s where the similarities stop. Form 1099-K is unique because it’s built to keep track of payments made through a “payment settlement entity,” or PSE. The form asks what kind of transactions you’re dealing with, as defined by the IRS:

• Payment card: This covers all transactions using a payment card, including those where you use an account number or other identifying data (such as a credit card number).
• Third-party network: This covers all transactions made through apps and platforms such as PayPal, Cash App and Venmo.

Keep in mind that these transactions only show up on your Form 1099-K after they exceed minimum reporting thresholds (more on that later).

Form 1099-K also reports the gross amount of “Card Not Present” transactions, which is any payment where a credit card isn’t physically present. In most cases, this will be the same as the gross amount of “payment card/third-party network transactions,” covered by another box on the form.

Who Gets Form 1099-K?

 A Form 1099-K tracks business income, whether from a small business or for a self-employed individual. Technically speaking, though, it’s not just work-related transactions that require this documentation. 

Say you have an antique ring. You decide to sell it — and because it’s a rare piece, you make a profit on the sale. (In this case, that means you bought it for one price and sold it for even more.) While this is a personal payment, you should still report this income on your tax return; that means you might get Form 1099-K, depending on how much you made from the sale.

That’s right: This document may record business income, sale of personal items or income from side gigs. Keep in mind that even if you don’t get a Form 1099-K, you still have to report income from goods or services on your tax return.

What Should You Do With Form 1099-K?

These days, there are all kinds of income streams. That means a single document may not track every dollar you make — so Form 1099-K is one of many that work together to help you report your income.

If you get one, The IRS says you should do a few key things:

• Check your records. Add up all the income on your receipts and merchant statements. This should match the amount on your Form 1099-K. 
• Look for all payment methods. Don’t forget about debit cards and stored-value card transactions. These should also be reflected on your Form 1099-K.
• Keep documentation handy. In case of an error or audit, you’ll need to maintain evidence to explain where your income came from and why you’re making any deductions.

Once this is done, you’ll use your Form 1099-K as part of your gross income calculation. Once you’ve added up all the sources of income, both on and off Form 1099-K, you’ll report this on your income tax return.

Tax Changes Between 2021 and 2023

Just when you thought you knew what Form 1099-K is all about, the IRS comes along and makes a few key changes. We’re here you talk you through it!

What Changed?

The American Rescue Plan of 2021 introduced a lot of financial and economic changes that impacted taxpayers in different ways, especially when it came to income. One such change impacted the reporting threshold requirements for third-party payment processors.

In the past, you would have to received over  200 transactions and receive a minimum of $20,000 before reporting requirements “kicked in.” That means you wouldn’t receive a Form 1099-K if, for example, you were paid a total of $19,999.

However, new rules lowered the reporting threshold to $600. The number of transactions has also changed; instead of 200, any number of transactions makes the reporting requirements kick-in. As a result, third-party platforms, apps or other organizations are required to make a report when they process more than $600 on your behalf. The rule is intended to focus on professional and business income, not personal payment transactions — but there are situations where you might receive a Form 1099-K in error. We expect the IRS to move forward with the over $600 reporting threshold for 2023 and the upcoming filing season unless Congress passes a law to change the requirement.

When Do These Changes Go Into Effect?

This new rule was originally passed in 2021 under the American Rescue Plan. However, the change was to take effect with transactions starting tax year 2022 and lowered the reporting threshold by third party payment processors to over $600. On December 23, 2022, the IRS announced an initial delay and on November 21, 2023 the IRS announced another delay in reporting thresholds for third-party settlement organizations (TPSOs). 

As a result of this delay, TPSOs will not be required to report tax year 2023 transactions on a Form 1099-K at the lower amount of over $600. This means that for tax year 2023 (the taxes you file in 2024), the existing 1099-K reporting threshold of the aggregate of more than $20,000 in payments and over 200 transactions will remain in effect.

The IRS is currently planning for a threshold of $5,000 for tax year 2024 (the taxes you file in 2025) as part of the phase in to implement the lower over $600 threshold enacted under the American Rescue Plan. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.

Why did the IRS introduce this delay? Here’s what our tax experts said:

The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.

Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do. Check back with the TurboTax blog for more information. There are a lot of rumors and misinformation going around about payment apps such as Venmo, Cashapp or Zelle, specifically when it comes to the IRS and what you will have to pay taxes on.”

Tax FAQs: Understanding Your Form 1099-K

Still have questions about Form 1099-K, different payment card transaction types or personal transactions vs. business income?

Who Sends Form 1099-K?

According to the IRS, “You may receive a Form 1099-K from each payment settlement entity from which you received payments in settlement of reportable payment transactions.” That means multiple sources can send you this documentation.

For example, say you’re a small business and your customers use both PayPal and Venmo to buy your products. If you got more than $20,000 over 200 transactions on each platform in the tax year 2022, you’ll get two Form 1099-Ks in the mail. (Remember, this rule only applies to the tax year 2022; due to the IRS delay the reporting thresholds will impact most taxpayers in 2023.)

Will You Still Get Form 1099-MISC?

Form 1099-MISC is used in a few specific situations, such as businesses paying suppliers more than $600 annually. If you use a credit card or payment app for these transactions, they might show up on the 1099-K, too.

However, the IRS says that’s not necessary; in theory, some functions of Form 1099-MISC could be replaced by Form 1099-K. However, some businesses still use the former — which means it’s important to be sure you’re not accidentally paying taxes on the same money twice. To do that, you can use tax solutions to compare any 1099-MISC forms to your 1099-K. If the same transaction shows up twice, deduct the amount from the 1099-K.

What About Non-Taxable Income?

Say you’re using a credit card reader for payment transactions in your business. That’s great for business income — but if you use the same method for personal transactions, things can get messy. This is how systems may mix up taxable and non-taxable payments, and the latter can accidentally end up on your Form 1099-K. The best solution is to keep costs, payments and other transactions separate — and make sure to save those receipts so you can double-check everything during tax season.

Master Your Taxable Transactions With Help From TurboTax

When it comes to Form 1099-K — or anything included in your tax return — there’s no need to juggle everything on your own.

Start by brushing up on the basics. Learn more about Form 1099-K in this episode of our podcast, Friends with Tax Benefits: