The IRS has announced that individuals and small businesses should use third-party apps to submit their 1099-K Tax Forms when accepting payments over $600. This change is secondary to the American Rescue Plan, that has been passed in the year 2021. Section 9674 of this law has reduced the payment reporting thresholds for Form 1099-K from $20,000 in aggregate payments to $600 in aggregate payments. Previously the taxpayers were asked to report aggregate payments for over 200 transactions, and according to the new rule, taxpayers have to report payments received, irrespective of the transactions they have made. These changes are in force from the tax year 2021.
What is Form 1099-K?
Form 1099K is an IRS tax document that taxpayers use to report third-party transactions. This Form will offer information about the payment processor and the company that receives the payments. The Tax Form also offers a breakdown of the total payments and other tax-relevant information.
Taxpayers will receive Form 1099-K if they have received over $600 as payments in a year, irrespective of the number of transactions they have made. People who are accepting transactions using third-party services such as PayPal, Cash App, Square, Zelle, Stripe, etc., should file Form 1099-K for the tax year 2022-23.
What is changed on Form 1099-K for the tax year?
Before the tax year 2022, the businesses would generally receive tax Form 1099-K if they received gross payments exceeding $20,000 a year. The business should also have conducted at least 200 transactions. The changed rules for the tax year 1099-K reveal that the gross payment threshold will be lowered to $600 transactions for the year. The transaction threshold rule does not apply any longer. These changes in the 1099-K Tax Form can impact many businesses differently, but they could impact small businesses more. Cash-heavy businesses that only use third-party apps occasionally will get this tax Form in their mailbox.
How can small businesses use the tax Form 1099-K?
Regardless of the changes to the tax Form 1099-K, some recommendations for small businesses are as follows,
- If businesses use a bookkeeper or full-time accountant or are taking advantage of a tax-preparing service, they must file Form 1099-K. This tax form will help them double-check their taxes, even if they keep their book updated every month, throughout the tax year.
- Small Business owners who focus on preparing their tax Forms can use Form 1099-K to ensure that their financial records co-relate with their earnings. They should also cross-check their accounting and input the same information into their 1099-K Tax Forms.
- Businesses that operate as a sole proprietorship or as an LLC company would generally report their earnings on Schedule C of the tax Form. This is indeed an additional Form on their regular 1040 Tax Returns.
- The LLCs taxed as S-Corporations, C-Corporations, and Partnerships have to file their tax returns, and they should rely on Form 1099-K to verify their returns.
- These new changes have increased and enhanced the work of administrators in the business. Since the Tax Form 1099-K reflects the gross value of the business transactions that are processed on behalf of the business, it could turn hectic for the tax preparers.
- These new changes will likely flood the IRS and taxpayers with abundant paperwork. It is also true that most of the activities described in this tax Form will not result in tax obligations for the taxpayers.
Small businesses must keep their books and financial recordings accurate to respond to the 1099-K Forms they receive. The current regulation with this tax Form is complicated, and businesses can take help from proficient tax-preparing agencies like Tax2efile to file their 1099-Ks on time.
Tax Form 1099-K need not necessarily increase the taxes of small businesses. This tax Form aims to help small businesses with their tax preparation structure and make sure that the business reports its earnings accurately. Small businesses can take help from expert tax preparation professionals such as Tax2efile to report their earnings and taxes on time with the Internal Revenue Service. Choosing to e-file the tax Returns through Tax2efile helps to file the returns within the deadline and helps small businesses to avoid late-filing filing and penalties.