december2022january2023 - 27

FEATURE
6 Tips for Meeting New IRS Information
Return Reporting Requirements
By Wendy Walker
IN THE LAST several years, the American workforce
has seen a major shift in worker classifications. Sovos
reported a 33% increase in 1099-K forms filed from the
tax year 2020 to 2021, and a 17% increase in 1099-NEC
tax forms, both signaling a significant increase in gig and
contract work. With new tax reporting requirements
taking effect in 2023, it is imperative that SMB owners
understand the tax implications of those recent workforce
changes, as well as the practices for managing
any new tax obligations.
Below are six tips to help SMB owners
tackle the latest updates in tax reporting and
filing thresholds:
Be prepared to receive a 1099-K
- maybe for the first time. The IRS
reporting threshold has dropped
for Forms 1099-K, which means
1
online platforms will be issuing forms for anyone
with transactions totaling more than $600.
Closing the tax gap is a high priority, as evidenced
by the $80 billion the IRS received in the Inflation
Reduction Act this year, more than half of which
is earmarked for enforcement. Small business
owners will need to be vigilant about compliance.
Be mindful of gross amounts
reported on 1099 forms. If small
businesses are using onl ine
platforms to source work, they'll
2
need to be mindful of the discrepancy in the gross
amounts reported on Forms 1099-K vs what they
actually received from the platform company.
The amount reflected on their 1099-K likely
includes business-related expenses including
fees and credits. Small businesses should get a
copy of all the transaction details that make up
the amounts reported on the 1099 so that they
can properly identify and account for deductible
business expenses.
3
Don't use business accounts for
personal transactions. Online platform
systems cannot distinguish
between personal and business
transactions - which means the 1099-K they report
could include amounts that aren't even business
related. And, when amounts reported by third
parties on 1099s don't match amounts reported by
the small business on their income tax return, it
can cause a red flag with the IRS (and states) and
even lead to unnecessary penalty notices. While
taxes aren't due on those personal transactions, the
headache of proving that out isn't worth the risk.
Remember t he i ncr eased
volume of tax reporting forms.
Wi th the IRS lower i ng the
threshold to report earnings
4
and payment transactions for gig workers,
freelancers and contractors, businesses must now
complete hundreds of thousands more tax forms
by January 31, 2023. Be prepared for the delays
this is likely to cause and don't expect anything
to happen quickly.
Missing or incorrect information
can be very expensive. Improper
tax documentation collection
and validation processes often
5
lead to incorrect information being reported
DECEMBER 2022/JANUARY 2023 ■ www.CPAPracticeAdvisor.com
27
on tax forms, which can lead to incorrect filing
penalties and trigger withholding obligations
for organizations, amounting to $280 per form,
with a cap of about $3.4 million.
Zelle is not the same as Venmo.
Zelle is an ACH payment network.
Banks partner with Zelle to
participate in the network and
6
if your bank participates, you can use it to
transfer funds via ACH to participating bank
accounts. ACH networks are not subject to
1099-K reporting. Venmo is a digital wallet like
PayPal- you can store money in your account, and
you can reload the Venmo account with funds
from various sources like credit cards, and you
can transfer money out of your Venmo account
to other digital wallets. Venmo is considered
a third-party payment network for 1099-K
reporting purposes. ■
Wendy Walker is solution principal at Sovos, where
she uses her market expertise to create and implement
product and solution strategies that help customers
meet the demands of a constantly changing regulatory
environment.
http://www.CPAPracticeAdvisor.com
december2022january2023

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