If you’re eager to file your 2022 tax return in January or early February, the IRS has a warning: You’ll need to wait for “key documents” before filing in 2023.
In a release last week, the IRS urged “early filers” to watch for Form 1099-K, which reports income for third-party payment networks such as Venmo or PayPal.
“A little extra caution” could save time and effort, the agency said, because if you don’t report 1099-K income, you may owe money and need to file an amended return.
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“I would recommend waiting until at least the end of February or early March,” said Albert Campo, a certified public accountant and president of AJC Accounting Services in Manalapan, New Jersey. His reasoning: The deadline for companies to send 1099-Ks is Jan. 31.
That means tax filers should build in a little time to allow for slow or misdirected mail.
If you’ve recently moved, for example, it’s possible third-party payment networks still have your previous address on file and send 1099-Ks to the wrong place, he said.
Why many more filers will receive 1099-Ks
Experts say many Americans will receive 1099-Ks for the first time in the upcoming tax season.
Here’s why: Before 2022, the federal Form 1099-K reporting threshold was more than 200 transactions worth an aggregate above $20,000. But the American Rescue Plan Act of 2021 slashed the threshold to just $600, and even a single transaction can trigger the form.
I worry about self-preparing taxpayers who may not understand what’s reported on their 1099-K and why.
Phyllis Jo Kubey
While the change targets business transactions, such as part-time work, side jobs or selling goods, it’s possible some filers will receive 1099-Ks for personal transfers. The IRS urges filers to contact issuers “immediately” to fix errors or make adjustments on returns.
“The diligence and accuracy of the 1099-K reporting under the new lower threshold remains to be seen,” said Phyllis Jo Kubey, a New York-based enrolled agent and immediate past president of the New York State Society of Enrolled Agents.
“I worry about self-preparing taxpayers who may not understand what’s reported on their 1099-K and why,” Kubey said, noting that reconciling has been challenging for years. “Now, that problem will affect more people.”
Why it’s critical to have all tax forms before filing
When filing your return, it’s important to accurately report details from all tax forms, such as the W-2 from your job, 1099-NEC forms for contract work and 1099-G for unemployment income.
Known as “information returns,” these forms are sent to taxpayers yearly by employers and financial institutions to report taxable activity, with copies going to the IRS. Your tax return should match these forms, assuming the details are correct.
When the IRS receives your income directly from reporting companies, the system automatically flags mismatching returns. That’s why it’s better to wait and include the correct details, experts say. Otherwise, you’ll risk possible error notices and penalties later.
Kubey said it’s easy to miss forms for investment income since many opt for paperless records.
One way to double-check which forms the IRS has received is by logging into your online account to see your IRS transcripts, she suggested.
“Unfortunately, the IRS doesn’t publish taxpayer wage and income transcripts until later in the year,” Kubey said. However, “those transcripts are a fantastic resource for checking for missed tax forms,” including third-party payment reporting discrepancies, she said.
Image and article originally from www.cnbc.com. Read the original article here.