Tax Technique: IRS reporting adjustments


Statistics have proven that tax compliance will increase considerably when the quantities concerned are topic to third-party reporting. Wage and wage reporting compliance, for example, could be very excessive because of the Type W-2.

With a purpose to assist shut the tax compliance hole, the IRS and Congress have tended to maintain arising with extra third-party reporting necessities, topic to some occasional reversals when the reporting burdens seem to begin to outweigh the extra income generated. 2022 brings expanded reporting by third-party cost processors. 2023 brings expanded dealer reporting of cryptocurrency transactions. 2021 reporting reintroduced Type 1099-NEC separate from Type 1099-MISC. Efforts to get banks to report account data hit a roadblock in Congress.

Type 1099-Ok

For 2021 tax returns, the 1099-Ok reporting necessities for third-party cost processors in 2022 had a reporting restrict that applies if a person had greater than 200 business transactions and greater than $20,000 in funds over the course of the 12 months. For 2022 tax returns with reporting in early 2023, the brand new restrict is one transaction involving greater than $600 in items or providers acquired.

These adjustments don’t enhance the quantity required to be reported as earnings on the tax return; nonetheless, they’re more likely to make it tougher for taxpayers to underreport earnings. These new limits will clearly enormously increase the variety of 1099-Ks required to be submitted. The brand new reporting limits are so low that they’re much extra more likely to apply to nontaxable private transactions in addition to enterprise transactions.

Third-party cost processors will often have issue in distinguishing private transactions from enterprise transactions, so count on to obtain many 1099-Ks with respect to nontaxable transactions. Taxpayers this 12 months may assist to simplify their tax reporting through the use of separate third-party cost processors for enterprise transactions and for private transactions. The taxpayer would be the one chargeable for explaining to the IRS which 1099-Ks relate to nontaxable private transactions.

The expanded reporting necessities for 1099-Ks additionally enhance the chance of duplicate reporting of transactions. Taxpayers who pay for a transaction by means of a third-party cost processor could obtain a Type 1099-Ok from a third-party cost processor along with a Type 1099-MISC or 1099-NEC from the vendor for a similar transaction.

It can once more be as much as the taxpayer to maintain observe of all these kinds and doc duplicate kinds to keep away from overreporting of earnings.

Taxpayers are additionally extra more likely to obtain requests from third-party cost processors for the data mandatory for them to file the extra 1099-Ks now required. This might come within the type of a request to finish a Type W-9, “Request for Taxpayer Identification Quantity.”

Kinds 1099-NEC, 1099-MISC

IRS reporting filings in 2021 noticed the reintroduction of Type 1099-NEC for funds to nonemployees, reminiscent of unbiased contractors, distributors, consultants and self-employed individuals. These funds had previously been reported in Field 7 on Type 1099-MISC. The reporting was separated on account of totally different kind due dates to the IRS relying on the kind of cost concerned. The Type 1099-NEC is because of the service by Feb. 1 of the next 12 months, whereas Type 1099-MISC is because of the IRS by March 1 of the next 12 months.

Funds remaining on the Type 1099-MISC embody rents in Field 1, royalties in Field 2, different earnings reminiscent of prizes in Field 3, fishing boat proceeds in Field 4, medical and well being care funds in Field 6, substitute funds in lieu of dividends or curiosity in Field 8, crop insurance coverage proceeds in Field 9, gross proceeds paid to an legal professional in Field 10, fish bought for resale in Field 11, Code Sec. 409A deferrals in Field 12, extra golden parachute funds in Field 14, and nonqualified deferred compensation in Field 15.

Field 7, which had beforehand required reporting of nonemployee compensation, now requires reporting by payers who made direct gross sales totaling $5,000 or extra of client merchandise to a recipient for resale.

State tax reporting necessities range. Some states don’t require a 1099-NEC and a few solely require the shape if it contains withholding. The IRS will usually ahead Kinds 1099-MISC to the related states.

Cryptocurrency reporting

The bipartisan infrastructure laws enacted in November 2021 expanded required reporting on Type 1099-B to incorporate dealer reporting of digital asset transaction reporting beginning in 2023, with kinds to be filed in early 2024. It’s anticipated that Type 1099-B will likely be revised earlier than that point to particularly handle expanded reporting on digital belongings.

Reporting is required by companies which can be chargeable for often offering any service undertaking transfers of digital belongings on behalf of one other particular person. This might embody non-fungible tokens that use blockchain expertise, though the IRS has not but adopted particular steering on the tax remedy of non-fungible tokens.

Concern continues to be expressed that the legislative language defining a dealer for digital asset transaction reporting is so broad as to incorporate companies that may not have entry to the data essential to adjust to the reporting necessities. Efforts proceed in Congress to switch the legislative language, and the IRS may additionally make clear the reporting necessities if it feels that it might achieve this throughout the statutory language.


Early 2023 is more likely to see an enormous enhance in filings of Type 1099-Ks by third-party cost processors. This can require a big effort on their half to gather the mandatory data throughout 2022 to be ready to adjust to the filings. It can even be a big burden on taxpayers to doc and clarify Type 1099-Ks for nontaxable transactions and to establish and clarify when each a Type 1099-Ok and a 1099-MISC or 1099-NEC are reported for a similar transaction.

Then, in 2023, taxpayers and cryptocurrency exchanges will likely be required to enormously increase reporting of cryptocurrency transactions, together with non-fungible token transactions, topic to additional modification of these necessities by Congress or the IRS.


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