Are you planning to file your tax return early? Here are reasons for not to do so.

When it comes to tax return filing, we always take it seriously and try to file our tax as early as possible. However, IRS is warning taxpayers who like to file their tax returns in late January or early February to wait until later in 2023, 

 

Key Points 

• New $600 threshold for receiving Form 1099-K for third-party payments. 
• Form 1099-K applies to payments from third-party networks, such as Venmo or PayPal, for transactions such as part-time work, side jobs or selling goods. 
• It is possible you will receive a form 1099-K for a transaction that you did not anticipate, such as making a profit by reselling Taylor Swift tickets. 
• You may take action if you received an incorrect Form 1099-K. 
• Wait until the end of February 2023 and file your tax return in order to avoid amendment.  

Here is the reason why IRS is warning and asking for late filing.  

In a recent release, the IRS strongly advised against filing tax returns early to look out for Taxpayers may receive Form 1099-K | Internal Revenue Service, which will track third-party payment systems like PayPal and Venmo, according to CNBC. 

As per IR-2022-203 news releases, published on November 22, 2022. Extract from the news releases. 

 

“Taxpayers should report the income they earned, including from part-time work, side jobs or the sale of goods. The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. Prior to 2022, Form 1099-K was issued for third-party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. Now a single transaction exceeding $600 can trigger a 1099-K. The lower information reporting threshold and the summary of income on Form 1099-K enables taxpayers to more easily track the amounts received. Remember, money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. Those who receive a 1099-K reflecting income they didn’t earn should call the issuer. The IRS cannot correct it.” 

 

According to the IRS, the modification applies to payments made through third-party networks like Venmo or PayPal for transactions like selling items or performing part-time employment. Other examples include having a side job or selling goods. 

  

Before the year 2022, the reporting level for the federal Form 1099-K was for taxpayers who had more than 200 transactions with a total value of more than $20,000. However, as part of the American Rescue and Reinvestment Plan Act of 2021, Congress reduced the ceiling, and now a single transaction that is over $600 has the potential to activate the form. 

 

Reporting requirement is that (1) third-party networks like Venmo, or PayPal require to file annual information return and (2) issue Form 1099-K to the taxpayer. As a taxpayer, you will receive form 1099- K by January 31, 2023.  

 

Because there is a new tax reform, the taxpayer must wait until January 31, in addition to the number of days it takes for the mail to transmit the form 1099-K, before they may receive it. 

 

It is possible you will receive a form 1099-K for a transaction that you did not anticipate, such as making a profit by reselling Taylor Swift tickets. 

 

On the other hand, if you receive the form for personal transactions, the agency instructs you to get in touch with the issuer in order to have a correction made. According to the IRS, if the firm does not repair the error, you have the option of attaching an explanation to your tax return while still appropriately reporting your income. 

 

Read Understanding Your Form 1099-K | Internal Revenue Service (irs.gov) to know more. In this page, you will find FAQs which are very informative.   

 

Contact Surya Padhi at Sure Financials for any questions and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and  National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1 908.300.9193. 

Good recordkeeping year-round helps taxpayers avoid tax time frustration

Tax Tip 2022-183

Wading through a pile of statements, receipts and other financial documents when it’s time to prepare a tax return can be frustrating for people who haven’t managed their records. By knowing what they need to keep and how long to keep it, people can develop a good recordkeeping system year-round and make filing their return easier.

Good recordkeeping can also help taxpayers understand their situation when they receive letters or notices from the IRS.

Good records help:

• Identify sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.
• Keep track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.
• Prepare tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.
• Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.

In general, taxpayers should keep records for three years from the date they filed the tax return. Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.

Records to keep include:

• Tax-related records. This includes wage and earning statements from all employers or payers including payment apps or cards, such as Form W-2, 1099-K, 1099-Misc, 1099-NEC. Other records include interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on their tax return.
• IRS letters, notices and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS. These include adjustment notices when an action takes place occurs on the taxpayer's account.
• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
• Business income and expenses. Business taxpayers should find a bookkeeping method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.
• Health insurance. Taxpayers should keep records of their own and their family members' health care insurance coverage. If they're claiming the premium tax credit, they'll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.

Sure Financials and Tax Services LLC

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