Title: Understanding the New IRS Ticket Resale Reporting Rule and Its Impact on Taxes
Introduction:
The Internal Revenue Service (IRS) requires individuals to report the sale of an asset if it yields a profit. This includes ticket resale, such as selling concert tickets on third-party platforms like Ticketmaster or StubHub. A recent change in tax regulations introduced a lower reporting threshold for ticket sales, which will likely affect many taxpayers filing their 2023 tax returns.
I. The Official Tax Rules on Ticket Sales
1. Reporting Requirements: The IRS is now required to issue Form 1099-K if the gross payment from ticket sales on third-party platforms exceeds $600.
2. Profitability Determines Taxability: Only profits made from ticket sales are taxable. If the sales price exceeds the purchase price, the profit is considered a short-term capital gain and should be reported as income on the tax return.
3. Potential Tax Liability: Depending on the taxpayer’s overall financial situation, including income, credits, and deductions, selling tickets at a profit may result in a higher tax bill.
II. The Increased Reporting Threshold
1. Previous Threshold: Before 2023, the reporting threshold for third-party platform sales, including ticket resales, was $20,000 and a minimum of 200 transactions.
2. New Threshold: The American Rescue Plan Act in 2021 lowered the reporting threshold to $600 and removed the minimum transaction requirement.
3. Implications: The decrease in the reporting threshold means that more individuals will receive Form 1099-K from platforms like StubHub or Ticketmaster, exposing them to potential tax consequences.
III. Understanding Tax Implications through an Example
1. Scenario: Purchasing and reselling concert tickets for a profit.
2. Calculation: Subtract the proceeds from the sale (after deducting commissions and fees) from the cost of purchasing the tickets (also net of commissions and taxes) to determine the profit.
3. Reporting Requirement: If the profit from the ticket resale exceeds $600, the platform (e.g., StubHub) will issue a Form 1099-K, which must be reported on the tax return as income.
IV. Potential Tax Increase and the Impact on Americans
1. Rising Ticket Prices: The demand for tickets to popular events has led to higher prices in the resale market, making profitable ticket sales more common.
2. Increased Tax Liability: Many taxpayers may experience a tax increase due to the change in ticket resale reporting rules.
3. Potential Congressional Actions: Efforts are underway to revise the reporting threshold, with proposed bills seeking to restore the previous threshold or establish a new threshold based on transactions or dollar amount.
V. Preparation for Tax Obligations
1. Overpayment: Erring on the side of overpaying taxes is a smart approach when anticipating the 2023 tax bill and refund.
2. Accounting for Profits: Individuals who sold tickets for more than $600 should include any profits in their taxable income.
3. Monitoring Legislative Changes: Taxpayers should stay informed about potential revisions to reporting thresholds for ticket resales.
Summary:
The recent change in IRS reporting requirements for ticket resales impacts individuals who sell tickets on third-party platforms like StubHub and Ticketmaster. If the profit from a ticket resale exceeds $600, individuals will receive a Form 1099-K and need to report the income on their tax return. The lower reporting threshold reveals a potential tax increase for those who earn profits from ticket sales. However, it is important to stay informed about potential revisions to reporting thresholds as proposed bills may modify the current regulations.
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Any time you sell an asset for more than you paid for it, you should report the sale to the IRS and to pay taxes. If you buy something for $50 and sell it for $100, your profit is technically considered taxable income.
But in practice, the IRS has rules that provide thresholds for reporting requirements in certain situations. In 2023, there’s a new rule regarding ticket resale, so if you resold Taylor Swift’s Eras Tour tickets on a third-party platform and made a profit, here’s what you should expect.
The official tax rules on ticket sales
For ticket resale, the IRS is required to send you a Form 1099-K if you sell tickets through a third-party platform like Ticketmaster or StubHub and the gross payment amount exceeds $600. So, if you sold tickets for the Eras Tour, there is a strong probability that you will fall into this category.
That said, ticket sales are only taxable if you make a profit from them. So, if you sold $1,000 worth of tickets and paid $700 for them, your profit would only be $300.
Profits are reported as income (specifically, a short-term capital gain) on your tax return. Depending on the rest of your financial situation, you may have to pay taxes on the profit you make. On the other hand, if you sell tickets for less than you paid, you are unlikely to get a deduction for the loss unless your ticket sales are actual Business.
The reporting threshold has increased significantly. To be sure, these types of sales on third-party platforms were Always taxable. But before tax year 2023, the threshold above which you would be issued a 1099-K was $20,000 and a minimum of 200 transactions. The American Rescue Plan Act in 2021 changed it to $600. The rule was initially supposed to take effect in 2022, but the Biden administration later decided to delay it for a year.
It’s also important to know that if you receive an official IRS income form (like a 1099-K) in the mail, you can be fairly certain that the IRS has received a copy as well. So, be sure to report income on it — after all, having income that doesn’t match what the IRS knows you have is a quick way to get audited.
Will you have to pay taxes on the sale of your Eras Tour tickets?
For example, let’s say you purchased four Eras Tour tickets with a face value of $199 each. After taxes and fees, we’ll say you spent a total of $1,100 on the purchase. You then decided you didn’t want to go to the show for whatever reason and ended up selling the tickets on StubHub for $1,000 each, or a total of $4,000. However, after deducting all the fees charged by that platform, you received $3,500 in proceeds to add to your savings account.
Your capital gain is calculated by subtracting the proceeds of the sale (less commissions) from the amount you paid (also net of commissions and taxes). In this simplified example, subtracting $1,100 from $3,500 results in a profit of $2,400.
Since your sale was more than $600, StubHub would be required to issue a Form 1099-K to report it to the IRS and you would then have to include it as income on your 2023 tax return.
The question of whether you will have to pay taxes on the profit is more complex. But the general answer is that unless your income, credits and deductions result in no tax liability for the year, a profitable ticket sale like this will likely result in a higher tax bill. Without knowing your marginal tax rate (tax bracket) and other details, there’s no way to know for sure, but the point is that if ticket sales were profitable, it would be wise to expect your taxes to increase (or your refund to become a little smaller) accordingly.
Many Americans will see a tax increase due to this change
It’s fair to say that the change in ticket resale reporting will affect many people when they file their 2023 taxes. After all, demand for tickets to popular events has driven up prices since the live entertainment industry reopened after being was forced to temporarily close in 2020 due to the COVID-19 pandemic. It’s not just the Eras Tour. Concert tickets resold at three-, four- and even five-figure prices have become much more common.
To be sure, there is a possibility that the new reporting threshold will be eliminated by Congress before anyone actually has to file their 2023 taxes. In fact, a bill making its way through Congress right now (known as Small Business Jobs Act) would restore the old $20,000 threshold. And a bipartisan proposal in the Senate would raise the reporting threshold to $10,000 and 50 transactions.
Despite this possibility, when it comes to paying taxes, it is smart to err on the side of overpaying. As you anticipate your 2023 tax bill and refund, it’s a good idea to assume that if you sold more than $600 in tickets this year, you’ll need to add any profits you make to your taxable income.
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