Small And Midsize Business (SMB) owners must be aware of the tax repercussions of the most recent workforce changes because new tax reporting requirements will go into effect in 2023.
The worker classifications in the American workforce have undergone a significant change over the past few years. SMB owners must comprehend the tax repercussions of recent workforce changes as well as the procedures for handling any new tax obligations because new tax reporting requirements will go into effect in 2023.
To assist SMB owners with the most recent changes to tax reporting and filing thresholds, here are some tips:
1) Prepare to receive a 1099-K, possibly for the first time: Due to a reduction in the IRS reporting threshold for Forms 1099-K, online platforms will now issue documents to anyone who had transactions totaling more than $600. The $80 billion the IRS received this year under the Inflation Reduction Act, of which more than half is designated for enforcement, demonstrates the importance of closing the tax gap. Small business owners must be cautious about compliance.
2) Be cautious with the gross sums listed on the 1099 forms: It’s important for small businesses to be aware of the difference between the gross amounts reported on Forms 1099-K and what they actually received from the platform provider if they use online platforms to source work. The amount shown on their 1099-K probably includes fees and credits related to their business. In order to correctly identify and account for deductible business expenses, small businesses should obtain copies of all the transactional information that makes up the amounts reported on 1099.
3) Personal transactions should not be conducted using business accounts: Online platform systems are unable to differentiate between personal and business transactions, which means that the 1099-Ks they submit may contain sums that aren’t even connected to businesses. Additionally, the IRS (and states) may become alarmed and issue needless penalty notices when the amounts reported by third parties on 1099s do not match the amounts reported by the small business on their income tax return. While no taxes are owed on personal transactions, the hassle of proving it isn’t worth the risk.
4) The growing number of tax reporting forms should be kept in mind: Businesses must now finish hundreds of thousands more tax forms by January 31, 2023, as a result of the IRS lowering the threshold for reporting earnings and payment transactions for gig workers, freelancers, and contractors. Expect some delays as a result, and be realistic about your expectations for how quickly things will move.
5) Missing or inaccurate data can be very costly: Inaccurate data being reported on tax forms as a result of improper tax documentation collection and validation procedures frequently result in incorrect filing penalties and withholding obligations for organizations totaling $280 per form with a cap of approximately $3.4 million.
6) Venmo and Zelle are different services: Zelle is a payment network that accepts ACH transactions. You can use your bank to transfer money via ACH to participating bank accounts if it is a partner with Zelle and a member of the network. ACH networks are exempt from 1099-K reporting. Like PayPal, Venmo is a digital wallet that allows you to store money in your account, add money to it from different sources, like credit cards, and transfer money between Venmo accounts to other digital wallets. For 1099-K reporting purposes, Venmo is classified as a third-party payment network.
The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.
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