In a year, IRS reporting requirements will change drastically. The IRS has been trying for years to make it easier for taxpayers and tax professionals to comply with federal income tax law by providing more timely and valuable information about the tax system. Beginning on January 1, 2022, cash app business transactions totaling more than $600 will be required to report to the Internal Revenue Service.
This blog post will explore these new IRS rules and how they may affect your business.
In a world filled with easy-to-use payment apps, taxpayers and tax professionals alike are in a frenzy trying to understand the IRS’ new reporting requirements.
ABC Action News states the new IRS rule will require cash app users to report any business transactions over $600, but before this happened, they were only required if the amount was greater than $20K. This includes things like Venmo, Zelle, and PayPal.
The change affects how transactions are reported, but it does not affect what is taxable or deductible. WDSU News reported that you should still maintain accurate records — especially if you are a business owner. In this manner, if you are audited, you will be able to prove whether the money is taxable or not. Additionally, having a separate cash app platform for your business is a good idea.
Business owners, independent contractors, self-employed workers, or part-time workers that accept payments using any of the cash apps would be the most adversely affected by the change. Current law mandates that tax forms be sent to users “if their gross income [from payments made through the app] is $20,000 or more, and if they make 200 distinct transactions within a calendar year,” according to WDSU 6.
On the other hand, personal transactions will not be affected. However, when self-employed individuals use the same cash app for personal and business transactions, confusion can arise. If you use cash apps for your business, be sure to keep good records of all taxable and non-taxable transactions.
Setting up a separate account for these business tax transactions will help avoid any confusion with taxes when filing the Form 1099-K at tax time later this year or next spring, depending on where you live.
This new IRS requirement matters especially if you are a taxpayer or business owner, as this new rule will affect you or your business in several ways:
- It may require more time spent on filing taxes because of the additional IRS paperwork that must be completed.
- You may need to hire extra staff to assist with IRS paperwork.
- You may have to pay IRS penalties if you fail to comply with the new reporting rules.
- The IRS will require certain information be included in your IRS report.
No matter where you stand on the IRS rules, it’s essential to be aware of them and comply to avoid IRS penalties and fines.
The new IRS rule that will take effect in 2022 — requiring you to report business transactions over $600 — may sound like a pain, but it actually has some benefits.
First and foremost, the rule would make tax evasion harder for those trying to cheat on their taxes by not reporting all of their income.
Also, self-employed people have been finding ways around this limit with creative accounting methods or just underreporting how much they made because no one is monitoring them.
With these changes coming into place soon, though, many more people will be forced to start being honest about what they owe.
It also means that you need to keep better records than before, which could lead to some confusion if not done correctly.
As technology continues its rapid evolution, it’s vital that we are informed about all changes to avoid being caught off guard or outdated when filing taxes for next year.
If you’re interested in learning more about how these changes could impact your finances and what steps you can take now to protect yourself before 2022 arrives, click here to purchase our Personal Finance Fundamentals courses. You may also visit our website to learn more information you need for financial success.