You’re still on the hook for reporting full earnings–but you now have an expanded window to make improvements in your accounting.
Tax season won’t be a s complicated as expected for some business owners.
After previously announcing a reduced threshold for 1099-K reporting for 2022 taxes, the Internal Revenue Service announced in late December that this change will now take effect for 2023–a delay of one year. This change will require business owners using third-party settlement organizations (TPSOs) like PayPal and Venmo to report income of more than $600; the existing threshold is more than 200 transactions per year, or an aggregate amount of $20,000.
The $600 reporting threshold is a provision of the 2021 American Rescue Plan, and didn’t come as welcome news to business owners or their accountants. While businesses have always been liable to report all of their earnings to the IRS, some feared that these changes could make them more likely to make errors in their reporting, opening them up to audits.
“Tax professionals and taxpayers expressed a lot of concerns around filing pain points, as well as unexpected tax forms,” says Kathy Pickering, chief tax officer at H&R Block, in Kansas City. “This delay was put in place to help reduce confusion, as well as provide more time for taxpayers to prepare and understand the new reporting requirements. It also provides more time for TPSOs to prepare for issuing the 1099-Ks.” While the delay will provide temporary relief for business owners who may have felt pressure ahead of the 2022 tax season, entrepreneurs will still have to prepare for this lowered threshold to take effect this year.
That means it’s critical to stay on top of bookkeeping. “Taxpayers who receive Form 1099-K should use the form as well as other tax records to determine their correct tax,” Pickering says. “Keeping accurate records now, before the threshold change takes effect, is an important first step in ensuring all income and expenses are tracked and small businesses pay the appropriate amount of taxes, especially when it comes to third-party apps and services.”
Sean DiMercurio, a certified public accountant and founder of the Orlando-based accounting and tax firm DiMercurio Advisors, recommends that business owners keep track of earnings on their own using bookkeeping software (like Xero or Quickbooks for small businesses), in the likely event that they discover errors on their 1099-K forms. And to make matters simpler, make sure to keep business accounts (on PayPal, Venmo, and other TPSOs) separate from personal use, he previously told Inc. With a one-year delay to prepare for the IRS’s reduced 1099-K reporting threshold, you now have a bit more time get those books in order.
