The IRS has issued new guidance on its phased rollout of 1099-K reporting requirements. This impacts millions of users of platforms like PayPal, Venmo, Etsy, and eBay. These updates build on the IRS’s December 2023 announcement, where it delayed the implementation of a $600 reporting threshold due to concerns over taxpayer confusion and administrative burdens.

As we discussed in our December 2023 post, the IRS had originally planned to drop the 1099-K reporting threshold from $20,000 (and 200 transactions) to $600, but after industry pushback and legislative discussions, it introduced a gradual transition to ease compliance. The latest update confirms the reporting thresholds leading up to 2026.

Recap: What Happened in Late 2023?

In December 2023, we covered the IRS’s decision to postpone the $600 reporting threshold in response to widespread concerns that taxpayers would erroneously receive 1099-Ks for personal transactions. The IRS acknowledged that transactions such as splitting a dinner bill or selling personal items at a loss could trigger unnecessary tax forms, creating confusion.

At that time, the IRS signaled its intention to transition to a $5,000 threshold for 2024, allowing time for further adjustments. The latest update now provides a clearer roadmap:

• 2024: $5,000 reporting threshold
• 2025: $2,500 reporting threshold
• 2026 and beyond: $600 reporting threshold

The gradual approach aims to ensure that small business owners and independent contractors have time to adjust. It also gives third-party payment platforms time to refine their compliance procedures. However, the phased implementation is not without controversy. Many e-commerce platforms and lawmakers continue to push for a permanent threshold increase to prevent confusion.

Key Updates for 2024

Lower Thresholds, Same Reporting Rules
For tax year 2024 (filed in 2025), only business-related transactions that total $5,000 or more will trigger a 1099-K form. While this is a significant reduction from the prior $20,000/200 transaction threshold, the IRS has emphasized that:

• Personal transactions remain exempt. If you send money to a friend for dinner or receive a gift through Venmo, it should not be reported.
• Business-related payments will be reported. If you sell products or services and receive payments through PayPal, Venmo, or similar platforms, those payments may be subject to reporting once they exceed the $5,000 threshold.

No IRS Penalties for 2024 Non-Compliance by Platforms

To ease the transition, the IRS has confirmed it will not impose penalties on third-party platforms that fail to comply with backup withholding requirements during 2024. This provides companies like PayPal, Venmo, and Etsy additional time to adjust their reporting systems.

Future Thresholds: Plan Ahead

By 2026, even causal sellers will be impacted. For example, if you sell a used couch for $700 on Facebook Marketplace, you could receive a 1099-K—even if you sold at a loss. Selling personal items at a loss does not create taxable income. However, receiving a tax form could still create confusion and require additional documentation to correct.

Legislative Uncertainty and IRS Criticism

The phased implementation of the 1099-K threshold has not been without controversy. While many taxpayers welcome the delay, some lawmakers and tax professionals believe the IRS has overstepped its authority by postponing the $600 threshold beyond the timeline set by the American Rescue Plan Act of 2021.

• E-commerce platforms like eBay and Etsy continue to lobby Congress to raise the threshold permanently, arguing that the $600 rule will lead to unnecessary tax forms for millions of casual sellers.
• Lawmakers from both parties have introduced bills proposing thresholds of $5,000, $10,000, or even $20,000, but Congress has yet to pass a long-term fix.
• Political debates continue, with some lawmakers framing the delayed IRS rollout as a tax policy shift that could have major implications for future administrations.

Despite this uncertainty, taxpayers should prepare for the likelihood that the $600 threshold will take effect in 2026 unless Congress acts.

How This Affects You

Business Transactions & Purchase Price Allocation Matter

If you’re a small business owner, freelancer, or independent contractor, the 1099-K will report your total payments received through payment apps. However, not all funds received may be taxable.

For example:

• If you earn $6,000 providing graphic design services through PayPal, that entire amount will be reported to the IRS and subject to self-employment tax.
• However, if $2,000 of that total was a personal gift from family, those funds should be flagged as personal transactions to avoid misclassification.

Properly labeling transactions as “personal” or “business” in your payment apps can prevent errors when 1099-Ks are issued.

Preventing Incorrect 1099-K Filings

If you receive a 1099-K in error (for instance, for personal transactions), you should:

• Request a corrected form from the issuing platform.
• Provide supporting documentation (e.g., receipts, bank statements) to clarify taxable vs. non-taxable transactions.

What Should Taxpayers Do Now?

• Keep detailed records of all transactions to ensure proper tax reporting. Many payment platforms allow transaction labeling, which can help prevent issues later.
• Review any 1099-K forms you receive and dispute any misclassified transactions.
• Consult a tax professional if you are a small business owner, freelancer, or independent contractor, as the new thresholds could impact your tax liability.

As we highlighted in our December 2023 article, the IRS is steadily reducing the 1099-K reporting threshold, requiring online sellers, freelancers, and small businesses to be more proactive in managing their tax reporting obligations. While personal transactions remain exempt, it’s essential to track income sources carefully to avoid potential IRS issues.

Meanwhile, Congress continues to debate long-term solutions, but taxpayers should prepare for the likelihood that the $600 rule will take effect in 2026 unless legislative action is taken.

If you need guidance on tax compliance or reporting strategies, contact us, the O’Neil Cannon Tax Team, for assistance.

Attorneys Christina Ruud and Cate Heerey, both experienced Milwaukee attorneys, have joined O’Neil Cannon.

Ruud is a member of the firm’s Business and Real Estate Groups. She concentrates her practice in commercial real estate with an emphasis on all aspects of acquisition and disposition transactions, real estate development and financing, and complex commercial leasing. Ruud also regularly represents owners of large real estate portfolios in all facets of asset management and provides contract drafting services to real estate brokerage firms.

Heerey is a member of the firm’s Business Law Practice Group.  Her primary focus is mergers and acquisitions, representing clients in the lower end of the middle market. Heerey specializes in drafting, reviewing, and negotiating a variety of contracts, including, purchase agreements, supply and distributions agreements, master service agreements and terms and conditions.

We are pleased to welcome Ruud and Heerey to the firm.

O’Neil Cannon, founded in Milwaukee in 1973, is a full-service law firm that focuses on meeting the many needs of businesses and their owners. Our experienced attorneys work with businesses and their owners at all stages of the business life cycle, helping them start, grow, and transition their businesses. We also assist business owners with their personal legal needs, including tax and estate planning and family law. For more information about the services we provide, please visit our website.

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• What to Expect for Tax Policy in 2025 After Trump’s Election Victory
• Judge Blocks DOL Increase to Salary Thresholds for Exempt Workers

Firm News:

• Founder Dino Antonopoulos of Antonopoulos Legal Group Joins O’Neil Cannon
• Super Lawyers Recognizes 30 O’Neil Cannon Attorneys
• O’Neil Cannon Ranked in 2025 “Best Law Firms”

Click the image below to read more.

Attorney Brady Dettmann graduate of Marquette University Law School, has joined O’Neil Cannon’s Business Law Practice Group.

Dettmann has experience in mergers and acquisitions, corporate and partnership taxation, non-profit organizations, and general corporate matters. While in law school, Dettmann worked as a judicial intern for Justice Hagedorn of the Wisconsin Supreme Court. Dettmann also worked as a legal intern for the U.S. Department of Veterans Affairs, Office of General Council.

Hamilton’s experience extends to clients across various industries, ranging from mergers and acquisitions and business corporate transactions to intellectual property matters, including licensing agreements, sports/esports affairs, and content creation. During law school, Hamilton held legal internships focused on esports transactional practices and served as a mediator through the Marquette Mediation Clinic.

We are pleased to welcome Dettmann and Hamilton to the firm.

O’Neil Cannon, founded in Milwaukee in 1973, is a full-service law firm that focuses on meeting the many needs of businesses and their owners. Our experienced attorneys work with businesses and their owners at all stages of the business life cycle, helping them start, grow, and transition their businesses. We also assist business owners with their personal legal needs, including tax and estate planning and family law. For more information about the services we provide, please visit our website.

The U.S. Fifth Circuit Court of Appeals reinstated a nationwide injunction on the reporting of beneficial ownership information under the Corporate Transparency Act. The injunction issued by a Texas federal court in early December had been overturned last week by a different Fifth Circuit panel.

For now, reporting companies are (again) no longer required to report beneficial ownership information, but reporting of beneficial ownership under the CTA could be required in the future.  The Fifth Circuit will hear arguments regarding the CTA reporting obligations on March 25, 2025. The Financial Crimes Enforcement Network has indicated that reporting companies may continue to submit beneficial ownership information on a voluntary basis. Given the uncertainty about what may happen in the appeal process, reporting companies should continue to gather beneficial ownership information in order to ensure compliance with any future reporting deadlines.

O’Neil Cannon will continue to monitor and provide further updates regarding the CTA. Please reach out to a member of the O’Neil Cannon team if you have questions related to the CTA.

On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit stayed a preliminary injunction of the Corporate Transparency Act. As a result, the U.S. federal government is again able to enforce the CTA, which includes the reporting of beneficial ownership information. Shortly after the Fifth Circuit issued the stay, the U.S. Financial Crimes Enforcement Network extended the filing deadlines for certain reporting companies to submit beneficial ownership information. The response to the Fifth Circuit’s decision by FinCEN[1] states in part:

“In light of a December 23, 2024, federal Court of Appeals decision, reporting companies, except as indicated below, are once again required to file beneficial ownership information with FinCEN. However, because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, we have extended the reporting deadline as follows:

• Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
• Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.”

Subject to any further developments, in light of the Fifth Circuit’s decision and FinCEN’s limited reprieve, reporting companies should gather beneficial ownership information as soon as possible in order to prepare the requisite filings by the updated deadlines.

For additional information or questions related to the CTA, please reach out to a member of the O’Neil Cannon team.

[1] The full alert (and other information related to the CTA and beneficial ownership reporting) is available at https://fincen.gov/boi.

In the spirit of the holiday season, the attorneys and staff at O’Neil Cannon once again held a holiday donation drive. This year, the firm collected items and monetary donations for Milwaukee Habitat for Humanity. Habitat for Humanity is a global nonprofit housing organization working in local communities across all 50 states in the U.S. and in approximately 70 countries. Milwaukee Habitat for Humanity works toward a world where everyone has a decent place to live, helping families become first-time homebuyers and making critical home repairs affordable for existing homeowners. Since its founding in 1984, Milwaukee Habitat for Humanity has helped nearly 1,500 local families build or repair their home.

Beginning January 1, 2025, Wisconsin will implement a new excise tax on electric vehicle (EV) charging stations under 2023 Wisconsin Act 121. If your business owns, operates, manages, or leases EV charging stations, here’s what you should know:

Who Must Register: Any business delivering electricity through EV charging stations must register with the Wisconsin Department of Revenue using the Online Business Tax Registration system. This requirement applies regardless of whether:

• • The charging station is open to the public or for private use.
  • A fee is charged for the electricity.

Residential EV charging stations are exempt, except for those located at hotels.

Excise Tax Details:

• • A 3-cent per kilowatt-hour tax applies to electricity delivered by:
    • Level 3 chargers.
    • Level 1 or Level 2 chargers installed on or after March 22, 2024.
  • Exemptions:
    • Chargers installed before March 22, 2024.
    • Residential chargers (except those at hotels).

Filing and Payment Requirements: Registered businesses must file returns biannually, with reporting periods ending June 30 and December 31. Returns and payments are due by July 31 and January 31, respectively. Late filings or payments may result in penalties, interest, or other legal consequences.

Penalties for Non-Compliance: Failure to register, file returns, or pay the tax can result in severe penalties, including fines, interest, and possible legal action. Compliance is critical to avoid disruptions to your operations.

For more details, refer to Wisconsin Department of Revenue Publication 305, or contact us, the O’Neil Cannon Tax Team, for guidance tailored to your business.

Making good use of the recent office renovations at O’Neil Cannon, the firm organized a pool tournament for its employees to break in the pool table in the new café on our upper floor. All 28 participants fought through group play, with the top 14 moving on to a single-elimination round.

Litigation attorney Dean Laing emerged as the champion, beating corporate attorney Pete Faust two out of three games in the tournament final.

While we are all better lawyers and legal professionals than we are pool players, we still enjoy a chance to flex different muscles and mingle with our colleagues with some friendly competition. Laughter, cheers, and good-natured banter brightened the café and the halls as the tournament progressed.

The whole firm was invited to watch Laing, the past president of the firm, edge Faust, the current president of the firm, for the coveted title of inaugural champion.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a preliminary, nationwide injunction enjoining the United States federal government from enforcing the  Corporate Transparency Act (“CTA”), which includes the reporting of beneficial ownership information (“BOI Report”) to the U.S. Federal Crimes Enforcement Network (“FinCEN”). The court’s reasoning revolved around the constitutionality of the CTA. The immediate impact is that companies are, at least temporarily, no longer required to file a BOI Report with FinCEN. Prior to this temporary injunction, the deadline for companies subject to the CTA filing requirements that formed prior to January 1, 2024 to file a BOI Report with FinCEN was January 1, 2025 (companies subject to the CTA filing requirements that were formed in 2024 previously had to file a BOI Report with FinCEN within 90 days of their formation, and companies subject to the CTA filing requirements that are formed on or after January 1, 2025 would have been required to file a BOI Report within 30 days of their formation).

Although the current injunction is nationwide (meaning all companies subject to the CTA filing requirements no longer have to file a BOI Report), because of the nature of the temporary injunction, it is entirely possible that the United States government may choose to appeal the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit, or potentially to the United States Supreme Court. If an emergency appeal is filed and heard, it is possible that the injunction will be removed and that all companies subject to the CTA filing requirements will again be required to report with no guarantee of any extension of the applicable deadlines. Additionally, it is also possible that an appeals court could remove the nationwide injunction and only leave it applicable to the specific plaintiffs, similar to the March 2024 ruling issued by the U.S. District Court for the Northern District of Alabama in NSBA v Yellen, which enjoined the government from enforcing the CTA against only the specific plaintiffs in that case. Furthermore, as of this writing, FinCEN has not issued a formal response regarding the injunction, which may provide further detail for reporting deadlines or other additional guidance, although FinCEN is currently still accepting BOI Reports. The rapidly approaching deadline coupled with the uncertainty as to whether the government will appeal or not (and if an appeal is made, what the ultimate ruling will be) puts companies in a difficult position to choose between (1) complying with the CTA and filing a BOI Report by the applicable deadline regardless of the injunction, or (2) waiting until a final determination is made and possibly rushing to file by year end. Please note that if you choose to not file a BOI Report for a company required to comply with the CTA and the injunction is lifted, depending on the timing, we may not be able to file your BOI Report by the new deadline unless the deadline is extended.

O’Neil Cannon will continue to monitor for additional developments. For additional information or questions related to the CTA, please reach out to a member of the O’Neil Cannon team.