What Transactions Must be Reported to the IRS?
Guide to Laws about What Transactions Must be Reported to the IRS
The reach of the IRS (Internal Revenue Service) is growing. Over the last decade or so, the IRS has started to require more and more transactions to be reported to it. From banks, to payment processors, to even individuals, there are various obligations to file information returns (forms you send to the IRS containing the pertinent information about transactions).
Here’s a breakdown of some common transactions that you may make from time to time, which you can assume the IRS will find out about.
Do I need to pay taxes on everything that gets reported to the IRS?
Not necessarily, but probably most of it. The IRS aims to collect information on the many forms of income that you receive, whether it’s from employment, a business, a real estate transaction, etc. Most of that income is probably taxable, but some of it may not be, depending on your situation. See more about tax law, and talk to an accountant/CPA for more info.
Do large cash transactions get reported to the IRS?
Yes. If you deposit in a bank more than $10,000 cash (meaning actual bills or cashier’s checks) at a time, the bank must report this to the IRS.131 USC 5313 If you withdraw more than $10,000 in cash or cashier’s checks, the bank must also report this.
Also if you make several deposits or withdrawals of less than $10,000 that are “structured” in order to evade reporting requirements, this is a crime, and also must be reported by the bank.2Bank Secrecy Act at 31 USC 5324 Even if you aren’t intending to do anything illegal, your activities may still be reported. Essentially, if the bank believes there is any “suspicious activity,” particularly in excess of $5,000, the bank must report this. For example, if you make a $6,000 cash deposit, and then another $4,000 cash deposit the next day, and then another $7,000 cash deposit the third day, this may be reported.
Keep in mind, just because it’s reported does not mean you will face any penalties or anything. The consequences you may face ultimately depend on whether you are paying your taxes properly, and whether or not you are engaging in money laundering or any other illegal activities.
These rules come from the Bank Secrecy Act, also known as the Currency and Foreign Transactions Reporting Act.
Do I have to report large cash transactions to the IRS?
Does Paypal (or Venmo, Cash App, Google Pay, Apple Pay, Zelle, etc) report my transactions to the IRS?
As of January 1, 2022, Paypal and other third party settlement organizations (TPSOs), sometimes known as peer to peer (P2P) payment networks, must report payments received for goods and services transactions made by users that total $600 or more within the year. (Note: Previously, a 1099-K was only required when a user received more than $20,000 in goods and services transactions, AND had more than 200 goods and services transactions in a calendar year.)
These transactions are reported on form 1099-K, Payment Card and Third Party Network Transactions. Paypal (and other payment processors) must send each user a 1099-K, and send one to the IRS.
This doesn’t include things like paying your family or friends back using PayPal or Venmo for food, trips, etc; or when sending money to people as a gift.
Keep in mind that some of the transactions that may be included on the form are generally not subject to income tax. For example, if you sold your sofa at a loss (say you paid $1000 for it and sold it for $500); or if you simply received a reimbursement (were paid back for an expense you made on behalf of someone else); or if you received money as a gift from a friend or family member. But talk to a tax professional for more info!
Does my bank report my transactions or balances to the IRS?
Banks generally do not routinely report most transactions or balance information to the IRS, unless the IRS specifically asks for it (for example, if you are being audited). Some exceptions are that the bank must routinely report cash or cashier’s check deposits of more than $10K (as discussed above); and any interest that the bank has paid you on your balance (form 1099-INT, Interest Income).
That said, there is a proposal in Congress to increase bank reporting requirements. The In-flow and Out-flow Reporting Changes would require all banks and payment service providers, like Venmo and Apple Pay, to report to the IRS total inflows and outflows for accounts with at least $10,000 of total deposits and/or withdrawals. We will work to keep this page up-to-date on the latest status of this proposed new rule.
Do cancellations of debt get reported to the IRS?
Yes, if a financial institution, bank, credit unions, federal agency or any organization that lends money on a regular and continuing basis “cancels” or forgives your debt, this must be reported to the IRS if it is $600 or more. The IRS may then tax you on this amount, as it is generally considered “income.” The institution reports this on Form 1099-C, Cancellation of Debt, and sends it to the borrower, and the IRS.
Are real estate transactions reported to the IRS?
Yes, gross proceeds from the sale or exchange of real estate must be reported on Form 1099-S, Proceeds from Real Estate Transactions. (Assuming it is $600 or more, but I don’t know what kind of real estate goes for less than $600!) The person or company responsible for closing the transaction is the one who must report the real estate sale, both to the person who received the proceeds, and to the IRS. It is usually well-defined as to who is the person responsible for closing the transaction, which could be either the buyer or seller’s lawyer, broker, or title or escrow company.
Do payments to freelancers and independent contractors get reported to the IRS?
Generally, yes. Payments to freelancers and independent contractors that total $600 or more in the year must be reported on form 1099-NEC, Nonemployee Compensation. The business which made the payments must send the independent contractor a 1099, and also send it to the IRS. See more about business taxes.
Do stock transactions get reported to the IRS?
Yes, these are reported on form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Brokers like Robinhood, SoFi, etc must fill out and send a 1099-B to each of their users, and to the IRS.
Do crypto and NFT transactions get reported to the IRS?
Cryptocurrency and NFT (non fungible token) transactions will be reported on form 1099-B beginning with tax year 2023. Brokers like Coinbase and Binance must fill out this form and send it to each user, and to the IRS.
Also, as with cash (see above), if a business receives more than $10,000 in cryptocurrency in a single transaction (or multiple related transactions), the business must report this to the IRS using Form 8300.
For more details on who must report what, see the IRS website.