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Yes, it’s true, Uncle Sam wants you to pay taxes on your online sales in 2024.

In previous years the IRS had a higher threshold of earnings that required you to pay income tax on earnings of over $20,000 generated from your sales on the major online marketplaces such as Ebay, Amazon, Shopify, Etsy, Facebook Marketplace and others.

Now that has all changed. For sales generated in 2023 the IRS may require you pay income tax on earnings of $600 or more.

For an updated status on the current income threshold for online marketplace sales (2024+) click this shortcut link.

That’s right, your part-time hobby has turned into a full-blown business. Are you prepared for this?

These marketplaces may report your sales of $600 or more to the IRS in January 2024 via a 1099 tax form. (My experience only involves the use of Ebay, but I believe they all will use 1099 forms)

If you only have occasional sales throughout the year, you may fall into the category of ‘virtual garage sales’ if you are selling ‘personal’ items only. If that’s the case, you may not have to pay anything on your earnings. (consult your accountant on this matter)

However, if you purchased items only intended for resale, and/or list items continuously throughout the year resulting in total sales of $600 or more, you should be prepared to file this cash flow as income.

For a more detailed look at the IRS official definition of a ‘Hobby vs. Business’ visit their website. ( the page is dated but the basic info is still valid)

Remember, as an IRS defined online business you are entitled to deduct your business related expenses just like any company. You can deduct your payments for…

• Internet Access
• Printer Ink
• Paper
• Office Supplies
• Shipping Supplies
• Marketplace Fees
• Postage
• Inventory
• A portion of your rent/mortgage (if applicable)

In order to deduct the items above you MUST have receipts for all of your deducted expenses. If you didn’t save receipts in 2023 don’t use the deduction, just start saving them in 2024.

Another ‘must’ is to document your merchandise purchases and your business expenses with either Accounting Software or a Business Ledger. I’m ‘well-seasoned’, so I use the old-fashion method of tracking my expenses and deductions in a ledger like a Dome Monthly Bookkeeping Record.

The benefits of tracking your expenses are a better understanding of your cash flow and profit margins, as well as a summary supplement to your Home Business/Hobby invoices and other documents.

Keep in mind, you’ll have a better chance of surviving an IRS Audit if you have a solid, verifiable trail of information pertaining to your expenses.

Look, we all get angry that we have to pay income taxes, especially when we see Major Corporations and Rich Entrepreneurs that don’t seem to pay their share.

However, it’s important that we all follow the law and pay our due tax. The price you pay for cheating, if you get caught, is much higher than the temporary gains you receive from fraud.

I don’t like the $600 income threshold the IRS has placed on all of us, whether it be a Hobby or a Business, the number is too low. To me, a Hobby turns into a Business with sales of $5000 or more. That seems more reasonable.

It’s too late to do anything about 2023, but maybe we can change things for the 2024 tax year. Earlier this year I contacted my local representative, Debbie Dingell, and explained my objections to the new IRS Tax Code, outlining the particular issues that would affect me.

I was pleasantly surprised when she wrote me back and informed me that she too, thought the $600 limit was too low. Furthermore, she told me that she had drafted a bill to revise the $600 to $5000, a number she considered more practical.

I’m not sure if the Bill was approved, or is still in process, either way, it would help if online marketers would contact their personal federal representatives and urge them to adjust the taxable income level to a more reasonable amount.

After all, if someone wants to earn a little extra money on the side from their hobby, by virtue of the Electronic Marketplace, shouldn’t they be able to do so without involving Accountants, Lawyers, and the IRS?

Please, when you have a moment, take the time to contact your federal legislators and let them know how you feel about the new 2023 Online Marketing Income Tax.

You can find your Senator and Representatives by entering your zip code and locating the email contact address on the Legislators page.

• To locate your House Representative visit this website.
• To locate your Senator visit this website.
  
  (Choose your State from the drop-down menu, then click the contact link of your local Senator)

I knew this was coming, so I’ve put aside funds to pay taxes on my online sales just in case I end up having to pay. Unfortunately I think many people will be caught off guard by this and struggle to pay any extra taxes due.

I hope this article was informative. If you were unaware of the new taxation code you still have time to prepare yourself, but don’t ignore this, it might bite-you-in-the-ass.

IRS UPDATE: 11/22/23… “Following feedback from taxpayers, tax professionals, and payment processors and to reduce taxpayer confusion, the Internal Revenue Service may delay the new $600 Form 1099-K reporting threshold requirement for third party payment organizations for tax year 2023 and is planning a threshold of $5,000 for 2024 to phase in the new law.”

WHAT THIS MEANS: “This means that for 2023 and prior years, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions. For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting requirements.”

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Thanks for reading my article.

UPDATE

Congress has changed the marketplace taxable income threshold for online sales to $5000 for 2024. They’ve debated this decision for years, the threshold was $20,000 for about 10 years. They plan to eventually change the limit to $600, we’ll see how that goes.

If you have online marketplace sales of $5000 or more through eBay, Amazon, or any other online sales account you (and the IRS) will receive a 1099 form from your marketplace account some time in January 2025.