New Year, New Tax Requirements
Do you use apps like Zelle, Venmo, and Cash App to accept payments from customers? How are you reporting those earnings? In the past, although all business owners were required to report their earnings on their Federal Tax Returns, only those who received payments of $20,000 or more through payment apps also reported their earnings using Form 1099-K. Recently, that rule was changed and will affect a larger pool of business owners going forward.
Will this new rule apply to your business? Keep reading to find out! In this post, we will discuss the new requirement, and how Xendoo can help you stay on top of your tax compliance in this evolving landscape.
Tax Reporting for Payments of $600 or More
Previously, the reporting threshold was much higher – $20,000 in gross payments, with at least 200 transactions in the current year. The update set a new minimum requirement for filing a Form 1099-K by third party payment apps: business owners who collect payments of $600 or more will now receive Form 1099-K from the payment apps they use, in order to disclose their mobile app earnings to the IRS.
The new requirement went into effect on January 1, 2022, and will apply to 2022 taxes, which will be filed in 2023.
Note: This requirement only applies to business-related transactions, not personal transactions. For example, reimbursements from roommates for their share of the rent and monetary gifts from loved ones would not qualify. The selling of personal items at a loss is also excluded, such as a bed purchased for $300 and sold for $100.
The best accounting practice is to keep personal and business finances under separate accounts, in order to save time and avoid confusion while filing taxes. Consider creating distinct profiles for your business under the payment apps you use.
Do Payment App Users Have to Pay More Taxes?
Now that the reporting amount requirement has been lowered to $600, it is likely that you (and many other business owners) will receive Form 1099-K from the payment apps you use, to file with your Federal Tax Return in the 2023 tax season.
The good news is that this does not mean that business owners now owe additional taxes. The use of Form 1099-K is only a reporting method and an update to the threshold in existing tax laws.
Adding yet another item to the tax season to-do list may feel overwhelming, but you do not have to handle it all on your own. Below, we will discuss how online bookkeeping and accounting services can help your business remain tax compliant!
Tax Compliance Done for You
Business owners deserve expert support as tax compliance rules change. In order to remain tax-ready throughout the year and maximize your return, consider partnering with an online accountant at Xendoo! They will provide:
- Online Bookkeeping: Tax savings begin with consistent bookkeeping, which provides the financial visibility needed to make informed, data-driven decisions, now and during tax season.
- Small Business Tax Services: Your online CPA will keep track of the changing small business tax regulations on your behalf, so you can focus on what you love – growing your business! They are available when you need them, all year long.
- Catch Up Bookkeeping: Are you behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Whether you are behind a few months or years, Xendoo can bring your bookkeeping up-to-date, complete with a year-end financial package to prepare your business for tax season.
Our services are designed to save small business owners time, stress, and money, so they can enjoy financial peace of mind, even when tax requirements change. Are we a fit for your business? Let’s chat! Click here to schedule your free consultation.