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Understanding the 1099-K and the updated IRS guidelines

Do you accept credit card payments for your work? What about payments through apps like PayPal or Venmo? If you answered yes, you might receive a Form 1099-K. 

This form is a tax document used to report income received through payment cards and third-party network transactions. This includes credit card payments, debit card payments, and any other form of payment made with a credit card. Third-party network transactions involve online payment platforms like PayPal and Venmo.

1099-K forms are essential for individuals and businesses at tax time, as they provide a detailed record of their income received through electronic payment methods, AND they are also used by the IRS to ensure accurate tax reporting so it's important to report any 1099-K forms you receive when you file.

For freelancers and independent contractors, you’ll refer to any 1099-Ks you receive when you file your taxes. If you’re using the Keeper app to file, you can simply upload the form and we’ll do the rest.

In 2023, one change that you need to be aware of is the revision of the 1099-K form. The IRS has made significant changes to the 1099-K form, reflecting the evolving landscape of digital payments and e-commerce. The most significant change is the reduction of the reporting threshold. Previously, businesses were required to report transactions only if they received payments totaling $20,000 or more, with over 200 individual transactions. In 2023, the threshold has been lowered to $600, with no minimum number of transactions. This change aims to capture a wider range of transactions for tax reporting.

The form typically reports gross income, which includes the total amount of payments processed through payment card transactions or third-party network transactions. This includes not only the income you received but also any refunds, returns, or chargebacks. If you had a significant number of returns or chargebacks during the tax year, it might explain why the reported income is higher than what you received. The gross amount of income reported on the 1099-K form also does not reflect business write-offs, and this is where Keeper can help save on your tax bill. 

When you earn income reported on a 1099-K, you may be eligible for certain deductions (AKA write-offs) to reduce your taxable income. Here are some common deductions that self-employed individuals and independent contractors often take for income reported on 1099-K forms:

  • Business Expenses: This includes costs for supplies, equipment, advertising, business-related travel, and more. 
  • Home Office Deduction: If you use a portion of your home exclusively for business purposes, you may be eligible for a home office deduction. This can include a portion of your rent, mortgage interest, utilities, and maintenance costs.
  • Vehicle Expenses: If you use your vehicle for business purposes, you can claim deductions for mileage or actual expenses related to the use of your vehicle.
  • Health Insurance Premiums: Self-employed individuals may be eligible to deduct the cost of health insurance premiums paid for themselves, their spouses, and dependents.
  • Retirement Contributions: Contributions to self-employed retirement plans, such as a Simplified Employee Pension (SEP) IRA or a Solo 401(k), are deductible.
  • Self-Employment Tax Deduction: Self-employed individuals can deduct the employer portion of self-employment taxes, which includes Social Security and Medicare taxes.
  • Education and Training Costs: Expenses related to courses, workshops, or training that are directly related to your business and help improve your skills may be deductible.
  • Meals and Entertainment: You can typically deduct 50% of the cost of meals directly related to your business activities.
  • Legal and Professional Fees: Fees paid to accountants, lawyers, and other professionals for business-related services are deductible.
  • Depreciation: You can deduct the depreciation of business assets over time.
  • Software and Technology Expenses: Costs for software, computer equipment, and other technology used in your business can be deductible.
  • Advertising and Marketing Expenses: Money spent on advertising, marketing, and promotional activities can be deductible.

It's important to keep thorough records of all your expenses, and Keeper can help ensure that you claim all the deductions you're eligible for and comply with IRS rules and regulations.

When filing with Keeper, select all your write-offs in the Keeper app under the Write-offs tab and upload or enter your 1099-K form in the Freelance Income section of the tax filing menu, and Keeper will take care of the rest.

 

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