Did you know the IRS is going to start taking a closer look at transactions that are $600 or over? This can be frustrating. Especially since they promised “only the rich would pay” for The American Rescue Plan that included this clause. Here is how small business tax will be impacted by the new $600 IRS rule.
Basics of the $600 IRS Rule
The new IRS rule could threaten your business’s financial livelihood as well as those with side jobs. Individuals and businesses who receive more than $600 in payment for “goods and services” will have to report the income to the IRS using a 1099-K form. This all begins in the tax year for 2023. This also includes any transactions done via cash transfer apps such as PayPal, Venmo, Square, and others. Before this year, these apps were only required to send the form if the total gross income was over $20,000 for the year.
How it Affects You
Did you know that this affects approximately 25% of tax payers? This includes anyone with a side hustle including work such as:
- Air BNB, VRBO, or other property rental.
- Uber, Lyft, or any driving hustle.
- Any service such as beauty, landscaping, trades, or other similar.
- Auto repair or maintenance.
- Home repair or improvement.
- Child or pet sitting.
- And most other means of earning a dollar for goods or services rendered.
How it is Different From Next Year
If you used these apps to get paid for your services and goods, you would not receive any IRS form from them, unless you earned more than $20k for one side job. However, you were still required to report any and all earnings to the IRS. You did it on an IRS form of your own, depending on if you filled out the long or short form. At year’s end of 2023, expect to receive a bunch of new forms from payment apps for your taxes.
The Issue with the New $600 IRS Rule
Some transactions are excluded from the rule. These include rent from roommates, gifts, or reimbursements for purchased items. For example, say you and your significant other or a friend are taking a vacation. You pay for the whole thing. They send you a Venmo for their half that exceeds $600. You may receive a form from Venmo which may classify this transfer as a form of income. Your bookkeeper or accountant will have to file correctly in order you do not pay taxes on this.
How Small Business Tax Will Be Impacted by the New $600 IRS Rule in Houston
Finally, feel free to contact us if you are a small business who would like help on how to manage the $600 rule. In addition, we can help your business get the most credits and deductions allowed by the law.
