Is the new rule on 1099-K going to affect you?
New IRS reporting rules for Form 1099-K may be applicable to some business owners in 2023. There is no change in the tax on income but this new regulation may result in taxpayers receiving Form 1099-K, Payment Card, and Third-Party Network Transactions for transactions made using payment cards and third-party payment networks worth more than $600 for the calendar year. It applies to business owners who generate an income by selling products or rendering services; they are subject to the new regulation.
How does this new rule impact business owners subject to taxes? Regardless of whether the taxpayer receives a Form 1099-K, Nonemployee Compensation, Form 1099-NEC, or another information return, all income must be reported on their tax return unless it is specifically exempted by law. However, the IRS underlines that cash inflow from friends and family as personal presents or compensation for personal expenditures via third-party payment applications cannot be taxed.
The new rule may also require business owners to consider making estimated tax payments. Generally speaking, taxpayers must withhold or remit anticipated tax payments as they receive money during the year. One could be required to make anticipated tax payments if insufficient income tax is deducted from their income or pension or if they get additional income such as capital gains, dividends, interest, etc. Reporting income accurately and having accurate financial statements to reconcile all income can help to deal with this.
Call us today at 832 295 3353 to speak to one of our small business accounting and tax planning experts for assistance.