If you’ve been selling goods or services online, the IRS may have its eyes on your earnings. A new reporting threshold means that millions more taxpayers will receive Form 1099-K this year, and failure to report income could result in penalties.
New 1099-K Thresholds: What You Need to Know
In 2024, anyone earning over $5,000 from online platforms like Etsy, eBay, or StubHub will receive Form 1099-K. Previously, this form was only required for those earning more than $20,000 in most cases. This change is part of a phased approach by the IRS:
- 2024: $5,000 reporting threshold
- 2025: $2,500 threshold
- 2026: $600 threshold
Even before these changes, taxpayers were legally required to report online income. However, without an official form, many failed to do so. The IRS is now enforcing stricter reporting to ensure compliance.
IRS Investigations Into Unreported Income
The IRS has already begun investigating cases where taxpayers may have failed to report their online earnings. One high-profile case involves JustAnswer, an online platform where experts like mechanics and veterinarians answer questions for a fee.
A recent court ruling authorized the IRS to demand JustAnswer provide records of users who earned more than $5,000 in a single year from 2017 to 2020—a period when the company allegedly didn’t issue 1099 forms.
One taxpayer under audit was found to have over $400,000 in unreported income over four years. Another is suspected of earning $1.3 million from answering more than 86,000 questions without reporting it.
Once the IRS obtains these records, affected taxpayers can expect IRS “soft letters”, urging them to correct their tax filings. Ignoring these warnings increases the risk of an IRS audit.
Reporting Online Business Income
If you earn money from selling products or services online, whether or not you receive a 1099-K, you are required to report that income.
For example, LuSundra Everett, a tax professional, sells novelty tax-themed mugs on eBay. Because she earns over $600, she reports her earnings on Schedule C, which is used for self-employment income.
Business sellers can also deduct expenses such as:
- Selling platform fees (e.g., eBay, Etsy fees)
- Shipping costs
- Supplies and materials
- Advertising costs
- Self-employed individuals may also owe self-employment taxes and, depending on their earnings, may need to make quarterly estimated tax payments to avoid penalties.
Selling Personal Items Online
The tax rules differ when selling used personal items online. If you sell something for less than you originally paid, you generally don’t owe taxes—but you may still need to document the transaction.
For example, if you sell an old laptop for $500, but originally purchased it for $1,000, you don’t owe taxes on the sale. However, if you receive a 1099-K, the IRS may expect an explanation.
To account for this:
- Use Schedule 1 to report the income and indicate that it was from personal items sold at a loss.
- If you sell personal property for a profit, report the capital gain on Form 8949 and Schedule D.
Certified Public Accountant Richard Shorin, who has been selling inherited and personal items online, warns that failing to report income properly could trigger an IRS notice down the road.
Stay Ahead of IRS Changes
The IRS is making it harder to underreport online income. Whether you sell part-time or run an online business, be sure to:
- Keep detailed records of sales and expenses.
- Report all income, even if you don’t receive a 1099-K
- Understand whether your sales qualify as business income or personal sales
As 1099-K reporting thresholds continue to drop, expect increased IRS scrutiny in the coming years. If you’re unsure how to report online income, consult a tax professional to avoid costly mistakes.
