Rule Change for 1099-K: What Ecommerce Sellers Need to Know in 2024

Attention ecommerce sellers! A significant rule change regarding the IRS form 1099-K is set to impact your business this year. Whether you’re selling on popular platforms like Amazon, eBay, Walmart, TikTok, or managing your online store through Shopify, it’s crucial to understand these changes to stay compliant and avoid potential issues with the IRS. Here’s what you need to know:

Lower Threshold for 1099-K Reporting

In previous years, the threshold for receiving a form 1099-K was $20,000 in gross sales within a calendar year. However, starting this year, the threshold has been dramatically reduced to $5,000. This means that a significantly larger number of ecommerce sellers will receive a 1099-K for the first time.

If your sales on these platforms exceed $5,000, you can expect to receive this form from the payment processor or platform you’re using. The form 1099-K is used to report gross payment transactions processed through third party network transactions and is also sent directly to the IRS, making accurate record-keeping more important than ever.

Why Does This Matter?

For many sellers, especially those new to ecommerce, this change may come as a surprise. Here are key points to consider:

1. IRS Reporting: The IRS uses the 1099-K to verify your reportable payment transactions. Any discrepancies between your IRS form and your reported business income can trigger an audit or other tax-related inquiries.
2. Accurate Bookkeeping is Essential: Ensure that your bookkeeping is up to date. This includes recording all gross sales, business expenses, and deductions to provide an accurate picture of your business’s financial health.
3. Business vs. Personal Income Tax Returns: Depending on how your business is structured (LLC, sole proprietorship, etc.), you’ll need to account for the income reflected on the 1099-K in either your income tax return or your business income tax return.

Steps to Take Now

• Review Your Sales Records: Start reviewing your sales data now to ensure it aligns with what the platforms will report on your form 1099-K.
• Work with a Tax Professional: If you’re unsure about how to handle this new requirement, consult with a CPA or tax advisor who specializes in ecommerce businesses.
• Keep Personal and Business Expenses Separate: Properly categorize your payment transactions to avoid confusion and ensure accurate deductions.
• Plan for Tax Payments: If this is your first time receiving a 1099-K, be prepared to account for this taxable income in your filings.

Understanding 1099-K Reporting Requirements

The form 1099-K is issued for reportable payment transactions processed by third party settlement organizations like PayPal, Stripe, and credit card companies. It includes the gross amount of all payment card transactions made within the same calendar year through these third-party payment networks. Be mindful that even small-scale sellers or those with a hobby income may now fall under these reporting requirements.

Stay Ahead of the Curve

The new $5,000 reporting threshold for IRS form 1099-K marks a significant shift that ecommerce sellers can’t afford to ignore. By staying proactive, maintaining accurate records, and seeking tax advice, you’ll be better prepared to handle this change and avoid potential pitfalls.

Remember, compliance is key to running a successful ecommerce business. Don’t let this rule change catch you off guard — take action today to ensure your tax preparation and filings are accurate and complete.