A client trades $4,000 of plumbing work for a used trailer, sells $9,000 of comic books, and cashes out an old brokerage account. All three touch the return, and two of them surprise the client.
Much of an individual's income also shows up on an information return, such as a 1099, which the issuer files with the IRS and copies to the taxpayer. This third-party reporting is the backbone of individual compliance. Your advisory job is to tell the client which forms to expect, what the issuer has already told the IRS, and what they must report even when no form ever comes.
The 1099 forms your clients most often receive:
Form 1099-K is the 1099 that reports what a seller receives by payment card or through a third-party network, such as a payment app. The One Big Beautiful Bill Act (OBBBA) restored the pre-2021 third-party network threshold.
TRAP: Payment card transactions have no de minimis (minimum) threshold at all. The merchant acquirer (the bank or other company that pays the business for its card sales) issues a...
Common mistakes
- Taxing collectibles gain at 20 percent. The ceiling is 28 percent, so taxing the $17,000 desk gain above at 20 percent would understate the tax by $1,360.
- Applying the pre-OBBBA $600 1099-K threshold to a third-party network. For 2025 it is over $20,000 and more than 200 transactions on that platform.
- Excluding depreciation gain under §121. The $18,000 in Example 1 is always taxable at 25 percent.
Bottom line
- 1099-K for 2025 requires over $20,000 and more than 200 transactions; payment card transactions have no threshold.
- Bartering income equals fair market value received, and that value becomes the recipient's basis.
- Cash receipts and unreported tips are gross income under IRC §61 whether or not a form arrives.
- Section 121 excludes $250,000 single and $500,000 MFJ on a principal residence, after 2-of-5 ownership and use.
Exam shortcut
Read the stem for the rate trigger before you compute anything. "Coin collection," "painting," "rare stamp," or "gold ETF" means 28 percent, and a 20 percent distractor will be sitting right there. "Home office depreciation" inside a residence sale means carve out the depreciation at 25 percent first, then apply §121 to what is left.
The full lesson (about 2,621 words, 17 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 1
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