01/03/2022

The IRS Will Examine Small Businesses' Digital Payment Service Accounts

This is a new tax rule for small business owners

A new tax rule will impact millions of small businesses in 2022. You can thank one small change buried in the American Rescue Plan Act of 2021.

Let’s suppose you’re a small business owner or freelancer, and you get paid from a digital payment service like PayPal, Venmo, Zelle, Cash App or any third-party settlement provider that’s accepting credit cards on your behalf and putting money into your bank account. If those payments were for goods and services that you sold to customers, it was previously up to you to make sure you were reporting that income on your tax return. But now, beginning in 2022, if you receive more than $600 in total during the course of the year – regardless of how many customers are paying – your payment service is required to report that amount to the Internal Revenue Service (IRS).

Let’s be clear: You should be reporting those amounts as income anyway. But the reality is in the U.S. there are 30 million small businesses, freelancers, solo-preneurs and independent contractors and – if my client base is any indication – many of them who receive a number of small payments from many customers throughout the year may, well, forget. Particularly if – as is often the case – there are many small transactions or their record keeping is sub-par. But no worries! The IRS will now be able to find out what you earned anyway.

Please select this link to read the complete article from The Guardian.