The Internal Revenue Service is now using information from 1099-K forms to create more leads for audit purposes. Right now, third party payment networks must send the Form 1099-K to payees who were paid over $20,000 and have over 200 transactions during the year. It is highly important to report this income if you receive a 1099-K as IRS software will detect discrepancies with receipts shown on Schedule C of the 1040.
Example: A man bought items online or from an auction website and then sold them on Amazon. The man had the items shipped directly to the buyer, and Amazon sent him a Form 1099-K showing $29,500. This amount was not reported on his tax return and the mismatched dollar amounts triggered an IRS audit. The taxpayer not only owed taxes on the unreported $29,500, but the IRS also disallowed his cost-of-goods-sold deduction reported on Schedule C because he couldn’t verify the cost of the items sold.
Beginning in 2022, PayPal, Airbnb, Amazon and other 3rd party entities must send 1099-Ks to all payees who were paid more than $600 in a year, regardless of the number of transactions. More taxpayers will receive 1099-K forms, and to avoid an audit, the dollar amounts on the 1099-K must match the 1040 form that was submitted.