IRS warns about filing your return early
You may be someone who doesn’t like procrastinating and files your tax return as early as possible. Or you may be planning to use your refund to buy a car or make another purchase. However, the IRS is warning you to use caution when filing early this year.
The problem with filing early is that a new law will result in people receiving Form 1099-K which may report income as taxable when it’s not. The IRS has no way of knowing if the money you received is taxable income. Failing to report sales of nontaxable personal items or reimbursements from friends could result in IRS problems and potentially an audit.
To prevent income tax evasion, Congress changed the requirements for reporting the 1099-K. The 1099-K will create problems for people who don’t report them. If you fail to report the amount from a 1099-K, you may receive a letter from the IRS claiming you owe additional tax and need to file an amended return.
Experts are saying many people will receive a 1099-K for the first time in the upcoming tax season.
A recent IRS press release is urging early filers to make sure they won’t receive a Form 1099-K from receiving money from a third-party payment network such as Venmo or PayPal.
The IRS is warning everyone that if you received over $600 on Venmo or PayPal, you should wait for your K-1 before filing your return in 2023.
The IRS urges you to immediately contact the company which issued your 1099-K for correcting adjustments.
In previous years, Form 1099-K wasn’t required to be reported unless you had more than 200 transactions with a total amount exceeding $20,000. But the new law reduced the threshold to $600, and even a single transaction can require Form 1099-K.
When filing your return, it’s essential to include information from all tax forms.
The IRS receives income directly from reporting companies, and the IRS computers flag mismatching income. It’s better to wait to ensure you included all income. Otherwise, you’ll risk receiving error notices from the IRS with penalties.
One way to prevent way to check for missed tax forms is to log into your online IRS account to see your wage and income transcripts. You can also ask your tax professional to retrieve your transcripts, but they may charge a fee. The IRS doesn’t usually post transcripts until May or June, but the date varies each year. This is a good reason for filing an extension.
The deadline for companies to send 1099-Ks is Jan. 31. However, you should allow a little time for slow or misdirected mail. The forms can also get lost in the mail.
If you’ve moved during the year, your 1099-K could be sent to your old address.
If you are filing early, don’t overlook a 1099-K.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at email@example.com.