So, this is about the time of year that we start getting those 1099-K forms.

You know, if you accept credit cards, the processors (third-party electronic payment networks, PayPal, Venmo, Square, and a few others) need to notify the IRS (and us) that we’ve collected funds via credit cards. To make sure that we properly report our income.  (We all do- right?)

However, this is the last year that the threshold for reporting by those folks to the IRS and us will be $ 20,000 and/or 200 transactions or more. Because the government (rightly) tightened up the reporting requirements via the American Rescue Plan of 2021 provisions.   The law required much better reporting systems, so that the unscrupulous will find it more difficult to cheat on their taxes.

Starting 2022 (that’s the income year, not the reporting year), a 1099-K must be issued for any business entity that receives $ 600 or more via credit cards.  (That’s the same threshold we use to determine who gets 1099s from us.)

Now, that sounds like it’s not a big deal, right?  After all, we’ve been properly reporting out income forever.  And, it will catch all those cheats who have not been properly reporting their income.

Well….

Not so fast.

I know a bunch of folks who transfer funds to pals via Venmo. Some use Paypal.  And, these folks may not have a personal account- or the vendor may not know if the account is personal or business.  Or, they don’t know if that funds transfer was for goods and services or not.

So, now.. here come a 1099K listing personal fund transfers- whether is to split rent payments, a dinner check, or to repay a quick loan.   I suggest that good recordkeeping is in order- to prove which funds are business and which are personal.  I am even considering (for our clients) preparing a special form for inclusion in our docs documenting those personal payments, so that the IRS doesn’t come knocking down the door trying to collect additional taxes for unreported business income.

Or, we may tell these folks to open up a second account, just for personal transactions.   Although I’m willing to bet the IRS is going to ask about those new accounts, anyway.

And, then, there’s this other wrinkle.

Peter Potatohead pays us for services rendered.  But, instead of paying us by check, he uses PayPal.  So, now his $ 1000 payment will yield us double entries.  Because Peter will send us a 1099NEC so he can deduct the $ 1000 from his taxes.  And PayPal will include the $ 1000 payment on their 1099K issued to us.  We’re going to have to justify to the IRS that there was only one $ 1000 payment.  (It’s why our accounting system will list Peter’s payment to us via PayPal, so we have proof why two entities would list the same payment.)

Looks like tax filing in 2023 is going to be fun…

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