Imagine paying more taxes because you’ve been misinformed. It’s stressful enough that you have to figure out your tax bills and send out your hard-earned money to the IRS every year as a small business owner. Adding this to the pile of tax misinformation you have to sift through is even more challenging. One of the most common sources of misinformation when it comes to taxes is the misconceptions about form 1099-K
“I don’t have to use separate 1099 forms”, and “I don’t have to report income if I don’t get a 1099-K for it”…These are some of the mistakes we see people make.
But who keeps feeding you misleading information?
Back up a second, and let’s clear it up for you. Keep reading so you don’t get into trouble with the IRS!
What’s A Form 1099-K?
If you run a business and earn an income with it, you probably know about 1099 forms already, although misconceptions about form 1099-K will make you think there’s nothing more to it. Third-party settlement organizations use a form 1099-K to report any payment transactions from the process for retailers and third parties. If your business has accepted payments card transactions from customers, your financial institution could send you a form 1099-K
The 1099-K, also called Payment Card and Third Party Network Transactions, shows the total business income you’ve made through financial institutions or payment processors such as Stripe or PayPal for the tax year. It is sent to both you and the IRS.
Who Issues Form 1099-K?
Part of the misconceptions about form 1099-K is about who issues it. Form 1099-K is mailed to customers via USPS and is sent to the same address where your monthly statements are sent. In addition, a copy is sent simultaneously to both the IRS and the merchant.
What’s The New 1099-K Threshold?
Everyone is still shocked about the Amerian Rescue Plan Act of 2021, especially small business owners. Previously, the minimal amount excepted for reporting by a third party has been payments over $20,000 and 200+ transactions during a tax year.
However, this threshold has been drastically reduced from $20,000 to $600 in 2022, with no limit to the number of transactions. So if you’ve had any business credit card transaction over $600 in 2022, you should expect a form 1099-K from the beginning of 2023.
Now that you know what form 1099-K is let’s talk about the misconceptions about form 1099-K
Top Misconceptions About Form 1099-K
I Don’t Have To Pay Taxes On Payments Under $20,000
Says who? Technically, you won’t receive any form 1099-K if you’ve received less than $20,000 in card payments and have had less than 200 payment card transactions. But this doesn’t mean the IRS doesn’t know about this transaction. You will still be taxed on it and need to report it when you’re filing your taxes. So you still have to pay taxes.
I Don’t Have To Report My Income If I Don’t Get A 1099-K For It
That would be nice, wouldn’t it?
This is one of the most popular misconceptions about form 1099-K. But it’s just not true. The fact that you didn’t receive a 1099-K doesn’t mean you aren’t required to report your income. If you own a business and make income from it, the IRS either already knows about it, or they aren’t far from finding out. So before you get into trouble with the IRS, do yourself a favor and report all your business income.
It Doesn’t Matter If I Miss The Deadline.
People often think missing deadlines for filing a 1099-K isn’t a big deal, which is another misconception about form 1099-K. You should know by now that the IRS doesn’t joke with deadlines, especially when it comes to business taxes. So your 1099-K comes with deadlines you should never miss.
If you miss your 1099-K filing deadline, the IRS will penalize you with fines, so be sure to file your 1099-K early to save yourself from making costly mistakes.
I Have To File My 1099-K Manually.
Nope! Remember when you could file your 1099s was to buy lengthy forms, fill them out and mail them to the IRS by hand. You never have to do that again. Gone are the days when you must worry about the stress of filing forms by hand. You can now file your 1099-K online, saving you money and time.
How Will The New 1099-K Threshold Impact Your Small Business?
Don’t get confused by the misconceptions about form 1099-K. Technically, the new threshold is unlikely to increase the tax burden of the average small business owner. However, form 1099-K remains crucial because it is used to determine your correct taxable income along with your financial records.
In addition, the 1099-K still means more headaches for business owners since it will reflect the gross value of transactions processed on your behalf. It basically means more paperwork for both the taxpayers and the IRS.
Take Home
You don’t need to get frustrated about misconceptions about form 1099-K. We agree that paperwork is a big headache, combine that with dealing with clients and trying to grow your business, and it’s just too much work! So, where do you start?
The first step is seeking professional help from a certified tax strategist like tax Goddess. The Tax Goddess Team ensures that your books and financial records are in order, so you don’t get any surprises when you receive your 1099-K.
The Tax Goddess Team will even go as far as helping you legally reduce your taxes to the bare minimum so that you can keep your hard-earned money in your pocket.
Say bye to more paperwork and reduce your taxes by reaching out to the Tax Goddess Team.
