As the gig economy continues to flourish, the IRS is ramping up efforts to ensure taxpayers properly report their side hustle earnings. In the 2024 tax season, millions of individuals earning income through online platforms like StubHub, Etsy, and eBay will face increased scrutiny, thanks to new reporting thresholds.
New 1099-K Reporting Thresholds
Taxpayers earning more than $5,000 from selling goods or services online in 2024 should expect to receive a 1099-K tax form. This is a significant change from prior years when the threshold was set at $20,000 for most platforms. The adjustment aims to close the income reporting gap and ensure compliance.
The new rules don’t stop here:
- For 2025, the reporting threshold will drop to $2,500.
- By 2026, it will reach $600, as originally mandated by Congress.
Even before these changes, taxpayers were required to report all income on their tax returns, but many did not. With these new measures, the IRS is sending a clear message: compliance is no longer optional.
Enforcement in Action
To illustrate its commitment, the IRS has begun investigating unreported income on platforms like JustAnswer. A recent case revealed:
- A taxpayer earned over $400,000 in unreported income over four years.
- Another individual failed to report $1.3 million earned by answering more than 86,000 questions.
The IRS is now issuing summonses to platforms like JustAnswer to identify non-compliant users. Taxpayers who are flagged will likely receive “soft letters” encouraging them to address the discrepancies. Those who ignore these notices face a high risk of audit.
When It’s a Business
If you’re earning income from a side hustle or online business, you must report it on your tax return, regardless of whether you receive a 1099-K. For solo entrepreneurs, this typically means:
- Reporting income on Schedule C.
- Deducting eligible business expenses like platform fees or shipping costs to reduce taxable income.
- Accounting for self-employment taxes, which may necessitate quarterly estimated payments to avoid penalties.
Selling Personal Items Online
For those selling personal items, the tax rules differ:
- If you sell an item at a loss (e.g., less than what you originally paid), you won’t owe taxes but must disclose it to the IRS.
- Selling personal items at a gain requires reporting the profit as a capital gain on Form 8949 and Schedule D.
- Receiving a 1099-K for personal sales may prompt an IRS inquiry if unreported.
Avoiding IRS Penalties
The IRS’s enhanced enforcement is part of a broader effort to promote tax compliance. To avoid penalties:
- Accurately report all income from side hustles or online sales.
- Maintain detailed records of purchases, sales, and expenses.
- Consult with a tax professional if you’re unsure about your obligations.
At BrilTax Advisors, we’re here to help you navigate these complex changes and ensure your tax filings are accurate and stress-free. Whether you’re a gig worker, small business owner, or occasional online seller, our team can provide tailored guidance to keep you compliant and confident. Reach out to us today to schedule a consultation.
