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Comment by PopAlongKid | Hacker News Reader

This closes, beginning 2022, a huge loophole (reporting omission) that has existed for the last several years. IRS Form 1099-NEC & 1099-MISC reporting did not include credit card or other 3rd party payment processor payments, while Form 1099-K also didn't include them unless relatively high thresholds were reached.

Now, many more such payments will be reported, encouraging more taxpayers under the U.S. system of "voluntary compliance" (self-reporting attested to under penalty of perjury) to be honest.

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How much revenue will this actually raise? The previous threshold was $20k which makes me think this new policy will mostly just result in the IRS catching the neighborhood bike repairman who made $3k last year on Venmo and didn't report it rather than some shadowy ecommerce millionaire tax cheat.

This is more legislative theater. "We're catching the cheats" where the cheats are as you describe, middle or lower class households or individuals trying to get ahead with a side hustle. I hope to see this reversed in the near future.

Why should a side hustle on etsy be taxed less than a side hustle working at the local coffee shop?

The side hustle on etsy will likely have plenty of expenses that come off the income--but now you made the person do things like maintain inventory and the like. The compliance burden is a lot higher.

I'd like to see some modified rules for sufficiently small businesses--no inventory, no depreciation, you simply take expenses when they are incurred. This would especially apply to service type businesses where your expenses are consumables and tool replacement.

There already are rules that avoid most depreciation in this case. The Tangible Property Regulations allow a De Minimis Safe Harbor expense deduction for assets purchased, such as a computer or office furniture. The max amount is $2,500.

There's another reply in this post about a scenario of selling a couch on Craigslist, as an example. The burden that comes with a simple transaction is undue.

Selling a couch on craigslist would easily be a "friends and family" transaction rather that a commercial one.

You’re only partially correct: the previous limit was 20k AND 200 or more transactions.

So for example, someone taking 100k over 50 transactions was previously unreported.

Old rules: https://www.irs.gov/businesses/understanding-your-form-1099-...

https://home.treasury.gov/news/featured-stories/the-case-for...

According to the treasury, the total gap is about $600B/year.

> To further ensure that everyone pays their fair share, the Administration also calls for using information that financial institutions already possess—without imposing any burden on taxpayers whatsoever—so the IRS can deploy these additional resources to audit more sophisticated tax evaders. These changes to the third-party information reports are estimated to generate $460 billion over a decade.

So about $46B/year from reporting changes.

However, contra your intuition that this will mostly impact marginal contractors, the treasury claims that the misreporting is progressive and higher earners misreport more income.

>"without imposing any burden on taxpayers whatsoever"

Do they actually expect us to believe this?

I think the point is taxpayers were already required to report this income and pay respective taxes. Getting a 1099 makes it easier, not harder.

I'm sure the ones making more misreport more--but they also have more ability to hide it.

> encouraging more taxpayers under the U.S. system of "voluntary compliance" (self-reporting attested to under penalty of perjury) to be honest.

Ha, yes that is a funny fallacy they use. On the IRS side, they use a social graph and node based system to determine who to look into.

If one filer takes a tax deduction for a payment, the IRS then looks to the recipient to see if they paid taxes. When a mismatch occurs, typically of the recipient, they send out the "we determined that you owe us this much" letters.

From my experience just talking to people, a very large number of people really believe that only their employer or a their bank is "snitching" on them, and whenever they get a payment outside of those systems they think "they don't have to pay taxes" because "the IRS doesn't know". I really am at a loss of words of how deep tax ignorance goes.

The 1099 system and compliance behind the 1099s is also a helpful notice for the IRS' graph system, although not necessary as they can just look at the same filer's deductions, but they can coax more payments as they do have statutory penalties for not filing a 1099.

or the alternative to push payments back to cash only or quit because its not worth the hassle.

Not worth the hassle of paying legally-required income tax?

Correct.

If I sell my old couch at a loss for $600, and get paid with Venmo, the default behavior now is to have a form sent to the IRS. The burden is on me to prove it is a loss and have the documentation to back it up, or risk having $600 of taxable income in the eyes of the IRS. At this small threshold, it sounds like a burden to me.

Separately, even though selling used goods at a loss is deductible on income tax, you can still get chased own for sales tax, thanks to USA's absurd non-VAT sales tax system.

>even though selling used goods at a loss is deductible on income tax

Not if the goods were for personal rather than business or investment use. Losses on sale of personal-use assets are non-deductible for income tax purposes.

Every part of your statement is wrong.

1) Selling used goods at a loss is not deductible on your tax return unless you are in the business of selling used goods.

2) Unless you are selling a lot of tangible goods (i.e., you have a business selling things), you aren't even eligible to register for sales tax in most U.S. states.

3) If tax applies to the sale of a used good in this situation, it would be a use tax that is the responsibility of the buyer to report and pay.

That's not true. The system only triggers for commercial transactions.

the loophole is that we just send via "friends and family".

And that's not a commercial transaction??

No, its a personal one.

>Not worth the hassle of paying legally-required income tax?

In many areas of economic activity, there is a level of operation where the costs of complying with tax requirements far, far exceed the costs of the actual tax due.

A good example of this is trying to operate a small, wholly-owned foreign company while a US tax resident. The costs of filing a complete form 5471 can be many thousands of dollars at a minimum (and potentially much higher), even if the amount of tax due is negligible or even zero.

I don't know if there's a term for this, but it strikes me as a kind of deadweight loss, where tax authorities gain tiny amounts of additional revenue to but tax payers spend much larger amounts on compliance.

My concern with sending more and more information to tax authorities is increasing these kind of deadweight compliance losses for small operators who will owe little or no additional tax.

Income tax is a stupid idea to begin with.

Marginal sales taxes would be ideal, but much more difficult to implement.

To be fair, most of the taxes we American citizens have to pay were enacted long before the IRS ever had a system to actually monitor and record our transactions.

Another poster mentioned selling a used couch for $600 and having that be reported to the IRS. It would then be incumbent on the seller to prove it was a loss and not a capital gain. Now I assume the auditor would let the seller off the hook for something like this, but the key point is that a transaction that no one was reasonably expected to report is now reportable and must be documented.

> but the key point is that a transaction that no one was reasonably expected to report is now reportable and must be documented.

If the transaction is marked as commercial in the app.

If you don't mark it as commercial you are breaking the law unless selling to family or a friend

I'm probably not paying some taxes right now that I'm legally required to pay. But it's not because I'm trying to cheat the system. I just really don't understand it. I've been involved in a total of one tax problem, and it was a nightmare. It stemmed from me submitting a form to the IRS that I evidently should not have. I would have been much better off if I literally filed and submitted nothing, and just waited for to receive the formal nasty-gram. So the hassle is in having a transaction recorded in a system that's going to create problems for me. I mean, if I had on oracle that could tell me what taxes I actually owed, I would just pay it with no problem. In fact, I would pay for that oracle. But as it stands, it's all too confusing. Cash seems safer.

I've done web/software development on the side. I used to have an S-corp, but dealing with IRS filings was a pain, so I started using Gusto. But that cost a lot relative to my quantity of work. I've since closed my corp (what a hassle that was!) and am thinking of hanging up my hat completely because its just not worth the hassle of quarterly filings, annual tax surprises, paying the additional turbo tax fees.

I also run a local youth baseball/softball lessons. I push all received funds into a paypal account. I don't profit from it, I just pay for field reservations. All money in goes out. But now, I'll have to jump through hoops. Now I ask myself if its worth it training other people's kids for free.

The junk flippers, handymen and professionals taking side jobs will be just fine taking cash. This only screws the "I work through an app" crowd.

Yeah, this is seems 100% targeted at gig workers.

Their customers are largely moving away from cash.

I'm curious to see if this impacts eBay and the high dollar transactions.

>"encouraging more taxpayers under the U.S. system of "voluntary compliance" (self-reporting attested to under penalty of perjury) to be honest."

I really dislike the implication of dishonesty. For the average person the IRS is involved in your paycheck, not in your Venmo transactions and Facebook Marketplace postings. I sense this kind of reporting is only going to create resentment, and I hope it does.

Edit: I Venmo my sister money for groceries and pizza from time to time because she is in college. I'm well under the threshold for the gift-tax (as long as you are under ~$14,000 a year), but now the IRS has a record of all these transactions I have even more to worry about when it comes time to file. What happens if my "payments" are ~$700 and I don't put that amount in the gift column on my 1040? What about her? Does she need to report this as well? The IRS will know about it.

Sure, you could say I was supposed to be reporting this the whole time, but is this a reasonable expectation for transactions so minor and mundane? Were you reporting such things this whole time?

Yes they weren't draining enough of our incomes already. This should make everyone very happy that we have yet one more avenue for the government to spy on us everyday in every way. This is double plus good.

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