Before 2022, small businesses and sellers using platforms like Venmo or PayPal only had to report earnings on their taxes if they had 200 transactions and at least $20,000 in revenue. However, this changed on January 1st due to a provision in the American Rescue Plan Act of 2021. The reporting threshold has now decreased to only $600.
Small businesses that accepted payments on these platforms in 2021 began receiving 1099-K forms for 2022. Now that so many more companies are required to report their earnings, more may be subjected to audits if the reporting is not done correctly.
Small business owners must protect themselves by keeping track of their finances outside these platforms. Even though this change will require more bookkeeping efforts, there are simple strategies that business owners can implement to make the next tax season less stressful. Here are some tips to help you keep everything straight:
1. Step up your Bookkeeping Efforts
Keep track of your earnings outside third-party platforms so you can cross-reference and ensure everything matches and is correct. If something doesn’t seem right, contact the platform first. Bookkeeping software like QuickBooks helps business owners properly document all expenses.
2. Keep Your Personal Payment Account Separate
The IRS won’t differentiate between the two if you have one Venmo account for personal and business transactions. It’s less of a headache for you to have business-specific accounts to avoid reporting issues.
3. Limit Your Payment Options
Accepting payments on as many platforms as possible may seem beneficial, but your bookkeeping is more complicated. Accounting can be overwhelming for small business owners. You don’t want to spend all your time maintaining your business transactions.
4. Consult with your CPA First
Estess Cpas provide permanent solutions to IRS and state tax problems for taxpayers. Since 2001. Estess CPAs have been helping businesses and individuals succeed. With two locations to serve you, Estess CPAs we have the expertise and credentials of larger firms without compromising the personal service our clients have come to appreciate.
At Estess CPAs, we believe information and planning enhance success. Specializing in small business solutions, we believe the key to successfully managing any business starts with well-informed accounting and payroll systems. Accurate and timely data empowers companies to analyze and react to upcoming needs and changes. Our professionals are experts at keeping accounting systems and payroll processes running smoothly.
Estess & Associates, LLC
Small Business Services
7822 Highway 23
Belle Chasse, LA 70037
Estess & Company, LLC
Certified Public Accountants
128 Lakewood Drive
Luling, LA 70070