Do you sell things online? Prepare to pay more taxes
The IRS has announced that it is changing the threshold for taxable income for online sellers starting for 2022 sales.
See: Do you support a Biden tax increase? Take our poll
Find: ‘Micro-sellers’ are changing how we shop – and the economy
In tax year 2022, the threshold for reportable income will drop significantly to $600, with no transaction minimum. But don’t worry about your taxes for this year – for tax year 2020 and 2021, tax filers who have made money from online sale platforms such as Etsy, Ebay, and Amazon, will still operate under the current threshold of $20,000 and 200 transactions.
Increased online sales could be a reason the IRS is looking to double down on online platform business income.
Personal online sales have boomed in recent years. The pandemic also lent itself to an onslaught of new sellers stuck at home willing to give things a try. The Etsy platform nearly doubled its yearly amount of sellers, up to 4.3 million in 2020 from 2019’s 2.7.
Taxable gain from hobby
In case you need a refresher, income from online sales and transactions need to be reported on a 1099-K for each calendar year. And if you’re feeling confused, you’re not alone – the line between business and hobby can easily get blurred, and the government has dedicated an entire section to demystifying the laws. Be sure to refer to the IRS website for instructions. The gist: If you are a hobbyist, but also earn income from your hobby, that profit income is also considered a taxable gain.
A massive proportion of the online resale marketplace appears to involve hobbyists: The 2020 Recommerce Report from E-Bay found that 85% of used goods that people sell on Ebay are from their own homes.
Technically speaking, any items sold at a gain should be reported to the IRS. This means that if you purchase a good, for example a pair of shoes, and want to re-sell them at a higher price, the profit made is considered taxable income.
All online sales that generate profit are considered taxable income. But although everything you earn profit on should be reported to the IRS, everything you claim on your 1099-K form might not be fully taxed.
See: 13 states won’t let you claim Biden’s $10,200 unemployment tax break
Find: How to itemize deductions like a tax pro
There are several deductions online sellers can take advantage of. Consulting with an accountant for maximum deductions is your best bet.
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This article originally appeared on GOBankingRates.com: Do you sell things online? The IRS is going to make you pay more taxes
