1099's Are A Waste of Time
By Ken Rogers,
CEO - My Fiscal Office, LLC
Congress passed a law that requires companies paying contractors over $600 to issue 1099s. The amount was selected to account for 'large' dollar amounts. This amount was not selected 20 years ago, not 30 years ago or even 40 years ago but almost 70 years ago (in 1954) when $600 was a significate amount of money.
If your business also has income from non-business customers or does not meet certain thresholds, then only some of your income is reported on 1099s. That means using 1099s to report taxable income is not correct and you need a system to track all your income.
This also means that the IRS does not have a record of all your income. They only know if you report less than the sum of 1099s sent by your clients. Therefore, it is possible that the entire 1099 reporting system does not help the IRS find hidden income.
Beginning in 2022, individuals, partnerships, LLCs, and corporations that earn more than $600 through various online venues will start receiving Form 1099-Ks. In prior years made through payment processors were only subject to reporting when the amount paid exceeded $20,000 and the aggregate number of transactions with that payee during the calendar year exceeded 200.
Transactions for personal transactions are specifically excluded from Form 1099-K reporting. Most payment processors will likely attempt to identify such transactions based on their user agreements, which generally specify whether the user will be using the website for personal or commercial transactions. I guess we are going to have to wait to see if PayPal, Venmo, and Zelle get this right.