The IRS Is Cracking Down on Unreported Income From Online Sales
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The tax rules on reporting income from sales happening online in places like Etsy, eBay and StubHub are changing. This means your side hustle is under a bigger spotlight than before. Online platforms complained about the extra record keeping it caused and they said taxpayers would be confused.

And then just people complain it's unfair. They're like, well, I'm trying to make a little money on the side. Should I really have to deal with all this record keeping and report it as income? The point is, if you're making a profit, you do have to report it as income. Wall Street Journal reporter Ashleya Ebling joins me to discuss what you should know when those 1099-K forms show up in your mailbox after the break. ♪

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The IRS is cracking down on unreported income from online sales. So what does that mean for those Taylor Swift tickets you sold last year? Wall Street Journal reporter Ashleya Ebling joins me. Ashleya, what are the biggest changes to the 1099-K form this year?

The biggest change is that millions more taxpayers are going to get the form this year. And that's because the thresholds have changed. For last tax season, you had to have made $20,000 and had 200 transactions to get a form. But this tax season for the 2024 tax year, it's just $5,000 no matter how many transactions. And so to be clear, that's all of the...

transactions that happened last year that you're going to file this year. Exactly. And who are these changes affecting? Like, who has to look at this? So mainly it's people making between $5,000 to $20,000 who this will be new for. And it's not just people who sell stuff like tickets and clothes online. It's also people making stuff and selling it on Etsy. It's people taking online payments for their services. Really,

Big thing, the IRS has just launched an investigation into taxpayers who earn money as experts on the online platform Just Answer. And they allegedly failed to accurately report their income. It was in the past from 2017 through 2020. And a judge in December just authorized the IRS to issue summons requiring Just Answer to provide the names of these people. So the point is you might be found out.

And it's any online platform like eBay, Etsy? StubHub. Yeah, you name it. A lot of people use Etsy selling tickets as a side gig. What if you're self-employed? Like how do these tax rules change then? Your Etsy gig would be considered self-employment income and you would just tack that on. If you're already self-employed doing something else, then you would just tack this on to your Schedule C and you're already used to doing this probably.

But for someone who has a W-2, like, regular daytime job and then they're doing this, they might get more confused because they don't already know that you have to pay in self-employment taxes and that you have to possibly pay in quarterly estimated tax payments to make sure that you've paid enough throughout the year, not just annually.

at the end when you'd file your return. So you'll know you have to pay that self-employment tax when you hit $400 in revenue. We can expect a lower threshold each year until the 2026 tax year, like you mentioned in your story, when it'll be $600. Why is the IRS dropping this threshold? So Congress put in the $600 threshold in a 2021 law to combat underreporting

Then the IRS decided to phase it in with these, like, thresholds every year because, well, first they delayed it for a couple years. Then the IRS decided to phase it in because online platforms complained about the extra recordkeeping it caused, and they said taxpayers would be confused. People complained it's unfair. They're like, well, I'm trying to make a little money on the side. Should I really have to deal with all this recordkeeping?

and report it as income. The point is, if you're making a profit, you do have to report it as income. What happens if someone doesn't report these earnings to the IRS? So if they get a 1099-K and fail to report it, it's likely the IRS automatic matching system will spit out this notice called a CP2000 notice asking about this discrepancy.

And those notices usually come out within a year or two after you file your return. And basically at that point, you have to fess up. And are there any penalties? There can be underpayment penalties, but you can ask for a first-time waiver possibly. And it also depends on the amount you're talking about, whether it's considered willful or not. As people prepare their documents for tax season, what are some steps they can take to make sure that they don't end up in hot water with the IRS? You'll get the form, and it also goes to the IRS.

So that's where the matching comes in. When you get the form, you just have to make sure then that you're putting it in the right place on your tax return. And again, even if you don't get the 1099-K form, all income does need to be reported.

The IRS made it a little easier this tax season. That was one of the changes on the 1040 tax return. They're on Schedule 1. If you sold personal items at a loss or you get a 1099-K in error, there's like one line on the tax return. Or if you're doing it online, there'll be an easy way to answer it. And you can enter the amount in error there. And you're basically disclosing the sales and alerting the IRS that it's not taxable income.

And otherwise, if it is taxable income, if it's a business, it's usually on Schedule C where you get to deduct expenses to. Or if it's an item that you're like reselling something at a gain, then that would be almost like it would be like a stock where you report the capital gain. So bottom line is no matter what, you sold something last year. You should take another look at it and just make sure that it's getting reported somewhere.

Yeah, or you might have this mismatch and then you'll hear from the IRS. And no one wants to hear from the IRS a year or two later. People are always scared at that point.

That's WSJ reporter Ashleya Ebling. We'll hear more from Ashleya on what's new for the 2025 tax season in our upcoming two-part series. The first episode drops February 2nd. And that's it for your Money Briefing. This episode was produced by Jess Jupiter with supervising producer Melanie Roy. I'm Ariana Aspuru for The Wall Street Journal. Thanks for listening.