They're just making sure the poor people pay their fair share too... I guess. It always makes me curious if the revenue to the IRS will offset the administrative costs for implementing this type of thing. It seems like they're really after small fry on this one as MOST people who likely have reasonable actual sales are already reporting this.
I wonder if they'll get an initial "income" from it because people don't have the original purchase price and can't prove the purchase vs sale price difference, but eventually people will have all of that and most will be a net loss again.
Did someone mention if this was inflation corrected as well, for things that have been held onto for a while? I know a lot of guys will buy a knife/gun/etc. hold onto it for a while and sell it for what they put into it, except that selling 3 years later the dollar is worth a little less, or a lot less as is the case right now.
There is not much of an increased administrative cost to the IRS for the implementation of this. The new law requires that 3rd party vendors send 1099s to anyone who has received over $600 in revenue. These are electronic and are tied to the user by Social Security number. Computers will simply look for desprepancies between reported income from an individuals tax returns, and the total income from 1099s, W2, etc that are received by the IRS. The cost for implementation of this law is on the 3rd party vendors, not the IRS.
There will never be a net loss for the govt. here, because hobby income can only reduce your hobby revenue to 0 prior to 2018, and you may not be able to claim any hobby expenses since the passage of the TCJA in 2018. You can not claim losses on hobbies like you can on business expenses.
Inflation is not factored in, just like it is not factored into any other investment, income or capital gain income that you may receive. If you buy investment property and sell in 20 years you report a capital gain, not a capital gain minus inflation.
This new law seems to be severely misunderstood. You were always supposed to report income from your hobbies. This has not changed. What has changed is that everyone has moved to 3rd party processors for convenience, and the government has recognized that they can now very easily enforce the existing laws by requiring 3rd party vendors to report the transaction total for individuals. This does not make you a business. It is still hobby income. Hobby income is taxable, and has been taxable for some time. Since most people do not keep receipts for their hobbies, this new reporting requirement is unfortunately a larger burden than it should be. I believe this is intentional, and following the TCJA it seems that you can't deduct your expenses or cost basis from your revenue anyway, so receipts don't do any good.
I see lots of people saying the easy solution is to simply move to Paypal F&F. This is tax fraud, with one of the easiest to trace paper trails that I can imagine. It is no coincidence that the most recent Build Back Better bill includes an increase of 80,000 IRS agents to “make sure the wealthy pay their fair share.” You are the wealthy. Friends and Family is intended as an easy way to gift money to friends and family, which is a tax free transaction. You can gift up to $16,000 to anyone tax free each year. If you “gift” someone $500, and they send you a knife, this is not a gift. Rest assured, PayPal and others already have algorithms in place to help identify who is using F&F to try and circumvent the tax reporting requirements. Once you are flagged, you will not only receive a 1099, you will owe the $2500 penalty to PayPal, and likely have your funds frozen. Any burden of proof to unlock funds, prove gift status, etc. will be the responsibility of the end user, not paypal or the IRS. If you think this sounds crazy, do you honestly believe that if you did 50 G&S transactions last year at $200 each, and this year you do 50 F&F transactions at $200 each that you are slipping under the radar?
Also in the recently defeated BBB plan is a reporting requirement for banks to report transactions over $600. The government realizes that even though paypal, Venmo and others are convenient, lots of people will still go back to cash and USPS money orders in order to avoid potential taxes on hobby income. However, if your bank is required to report any transaction over $600, this severely limits your ability to deal in cash without a paper trail. Sure, you can keep cash on hand, but with inflation, you are literally losing money every day by holding cash. If you think you can simply deposit $599 each day for a couple days to avoid the deposit transaction report trigger, there are already laws on the books about “structuring” deposits to avoid reporting. Note that this legislation did not pass, yet. It will eventually. The current threshold is set at $10,000 I believe.
This law is simply the first “check” move in a game of chess. Many of the laws and regulations have been in place for years, but this move is the first time that people have noticed because they can no longer ignore the laws on the books. Now a 3rd party is going to be reporting directly to the government for you. If you dont report a matching amount, you will ultimately be audited and have assets seized or payment taken from your bank account, which is likely linked to your tax return for convenience of depositing your yearly refund, right?
The end goal is multi faceted. The government wants and needs your money to operate. It has no income of its own and must take yours to survive. 2nd, In order to continue passing laws, there must be law breakers. “Too many people are circumventing the reporting requirement by using cash, we must require banks to report all deposits and withdrawals over $600 in order to make sure that the wealthy pay their fair share.” And further down the timeline, “We must move to a government controlled cryptocurrency where all transactions can be traced in order to guarantee that everyone pays their fair share, and also to eliminate illegal transactions on prohibited items like ghost guns, drugs, knives, banned books, red meat, or whatever the buzzword of the time is.” The government needs criminals in order to keep everyone else in line. It may seem far fetched to think that someone might go to prison for selling knives and making a few dollars now, but tax fraud is a crime and examples will be made to make sure everyone else pays their fair share quietly and respectfully.
The government has been playing chess for a while with citizens on the other side of the board playing checkers. We are now in a precarious position. The only way to make a meaningful change in the short term is for legislation to be reversed. Unfortunately, this means sacrifice on our end. Stop using paypal and other 3rd party systems. I understand the convenience of these systems and am personally guilty of using them for easy transactions, but they are the tools that have further enslaved us. We have all sacrificed freedom in the name of convenience. In our current system, maybe we can help reverse course by starving these giants we have created. By reducing the revenue that paypal, Venmo, and other 3rd party processors receive from our transactions, we can starve these companies. In turn, they will need to use their lobbying power to appeal to legislators to make changes. Since the most readily apparent cause of their troubles will be the recent legislation that required them to report revenue over $600, this is the first item they will go after. This is not the solution however. Everyone now knows that regardless of whether a 3rd party sends a 1099 to the IRS, you still owe taxes on hobby income that you received. If everyone still refuses to return to paypal after reversal of the recent laws, the next step could be to re-write tax law to exclude hobby income under a certain value from taxable income, or maybe exclude it completely.
Furthermore, write your representatives and express your displeasure at the current tax code. Not that you are upset that you might receive a 1099, but that you are upset that income that you might generate from your hobbies is taxable at all. While writing, feel free to express your views on increasing income taxes on the state and federal level, payroll taxes, property taxes, sales taxes, ad valorem taxes, capital gains taxes, estate taxes, net investment income taxes, mandatory health insurance taxes, etc, etc etc.
-JD
. Last year there was a discrepancy too, but was only a couple hundred dollars, and I think it may have been because one sale was actually F&F. So, totally confused, but at least it's been in my favor.
www.irs.gov
