As a performer and/or freelance artist, it is so important to stay on top of any changes that might affect how you file your taxes. What new forms or rules will you need for your individual situation? What will your tax preparer need? How will this affect your bottom line?
Let’s dive into what you need to know about the 1099-K form and the new rules surrounding it.
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The 1099-K is a form used to report payments made through debit, credit, and stored-value cards (prepaid cards not maintained by a financial institution, like a bank), as well as payments made through third-party transactions. Third-party payment platforms include services like:
- PayPal
- Venmo
- Cash App
- Backstage
- Zelle
- BitPay
They allow merchants and LLCs to accept online payments without needing to open a merchant account. These third-party platforms are often used to pay for services including acting performances, on-set support, or post-production support, and their popularity has led to changes in the way they are reported on tax forms.
At Backstage, we have seen a rise in these types of payments. Here is a recent example of an employer looking to pay their PA via Zelle or PayPal:
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The new 1099-K rule changes how individuals should report payments and transactions from online platforms, apps, and stored value card processors such as Venmo, Zelle, and PayPal to the IRS. Previously, these platforms only created 1099-K forms for individuals that had 200 transactions totaling more than $20,000. Now, they will be required to file 1099-K forms with the IRS for all individuals who have transactions totaling more than $600.
This change will apply for the 2023 filing year—meaning starting Jan. 1, 2023, if a person receives more than $600 on a third-party payment platform, that platform will be required to fill out a 1099-K form and provide it to both the individual and the IRS for the 2023 tax season.
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Everyone who receives or processes money related to a business transaction via an online third-party platform will be affected by the revision.
- The platforms are now responsible for generating 1099-K forms to report the information to the IRS and the individual.
- Individuals processing business payments via these platforms are affected, as the new rule enforces more detailed reporting of both business income and revenue-generating hobby income.
- This rule does not apply to personal money exchanged between friends, family, or acquaintances. For example, if your friend sends you money via Venmo for their half of dinner, that should not be reported under the 1099-K tax law.
- This rule will also not affect unionized workers as they will continue to receive a W2 form.
For most freelancers, filing income taxes will remain relatively simple, as payments for services such as voiceover work, background acting, and freelance editing are typically paid by check, ETF, or direct deposit; this type of income will continue to be reported on 1099-NECs. However, the 1099-K will come into play for many independent contractors or people who do contract work on the side to supplement their main source of income.
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The changes will force actors and other freelancers to reassess how they collect payment for their work, as some platforms will allow you to tag payments on the platform as business-related versus personal. The ability to tag transactions as business-related will improve the accuracy of the 1099-K generated by the platform.
“This change in the rule emphasizes the need to apply a preventative model of tax planning for freelancers,” says Joseph Lizza of Lizza & Carullo CPAs & Advisors. “Freelancers need to treat tax preparation with the same diligence and attention they give their craft.”
The revision of the threshold does not fundamentally change the way actors report income, but it does change how diligently they must manage and keep track of invoices for their work.
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Actors will continue to report income earned on their Form 1040. The $600 threshold of the 1099-K should not change income reporting methods.
Susan Lee, a New York City–based consultant who has been preparing taxes for freelancers for 20 years, sums it up: “The reality is, you’re supposed to put in every penny you make. Whether you get the money through Venmo or Zelle or whatever, you’re supposed to have invoices. The money’s going to go into your checking account…. It will be recorded as income.”
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If you’re a freelance artist, it’s important to stay organized to save yourself a headache when it comes to tax season. Here are some tips.
Keep your business and personal payments separate.
Many platforms now offer personal and business account types and filters to make it easier to separate your expenses. If the platform you’re using doesn’t have this capability, it might be a good idea to create a separate account specifically for your business expenses. This way, you can easily manage your income documentation and be prepared come tax time.
If you work with a tax preparation specialist, reach out to them to discuss your personal tax planning. They can help you determine the best strategies for collecting reimbursements, choosing which credits and deductions you may be eligible for, and what to keep track of throughout the year. Think of it like preventative care for your personal finances.
Make sure you receive your forms.
When it comes to tax forms, it’s crucial to make sure you receive all the necessary documents. Keep track of all the payment platforms you use for your business so that you can easily track down your 1099-K copies when tax season rolls around. And if you haven't received your 1099-K form by Jan. 31 and you made more than 200 transactions of over $20,000 in 2022, reach out to the platform and request a form.
Documentation is key.
According to both Lizza and Lee, it’s critical to keep track of your income and business transactions as a freelancer under the new rule.
Instead of relying on the old “shoebox method” of tax preparation, consider using digital organization platforms to keep all your receipts and invoices in order. This will help you easily differentiate between personal and business-related expenses and keep everything in chronological order.
Disclosure: This communication is on behalf of Backstage LLC and its affiliates (“Backstage”). This communication is for informational purposes only and contains general information only. Backstage is not, by means of this communication, rendering legal, financial, accounting, business, tax, or other professional advice or services. This communication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your interests. You should consult a qualified professional advisor. Backstage does not assume any liability for reliance on the information provided herein.