IRS TO CRACK DOWN ON SIDE BUSINESSES OF TAXPAYERS
Starting in January, users selling goods and services through such popular sites as Venmo, Etsy and Airbnb will begin receiving tax forms if they take a payment of more than $600. The new requirement only pertains to payments received for sales of goods and services and does not apply to friends and family payments.
The new IRS rules have created an outcry on social media. The lower threshold for reporting comes as more and more Americans are beginning their own business. In 2021, a record 5.4 million taxpayers applied to form their own business, according to U.S. Census Bureau data. Experts believe the surge in new businesses is due to (1) the COVID Pandemic and (2) because it is easier than ever to use apps to sell crafts, provide services, or rent out a vacation home online.
Apps, marketplaces and payment providers have long had to report certain payments to the Internal Revenue Service for any user that collected more than 200 transactions that totaled more than $20,000 in value in a given year. The new $600 threshold arrived last year as part of the American Rescue Plan, which the White House billed as a way to provide relief to small businesses hit hard by the pandemic.
The IRS is already suffering from a backlog of returns (over 8 million) and a shortage of workers. This new requirement for reporting will add untold amounts of additional filing by third-party payers. For example, the new law means that any business that pays its workers, such as Upwork, Uber, DoorDash, and Etsy must submit a 1099-K to the IRS on behalf of the individual providing the delivery service, as the payment represents goods and services that are settled by a third party.
The IRS believes that the new law will crack down on tax cheaters. They estimate that the new law will generate $8.4 billion over ten years. But to the small business owner, the new law means additional tracking of data to properly record the amounts reported by the third-party provider.
If you have any questions, please contact Stanfield + O’Dell.