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Archives for April 2022

Collecting Income from Online Payment Apps? $600 is the New Reporting Threshold

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If you use P2P (Peer-to-Peer) payment apps, such as Venmo, Square Cash or PayPal, you may be surprised early next year when you find an IRS 1099-K form in your mailbox.

Under the American Rescue Plan, a new law requires P2P providers to send you and the IRS a 1099-K if the gross amount of your business income is more than $600.

Previous guidelines required P2P providers to only send 1099-Ks when you had 200 transactions and $20,000 or more in income.

This new law decreases the income threshold by more than $19,000 and lowers the transaction threshold from 200 to one transaction! So whether you’re accepting payments for personal or business income, many more taxpayers will be receiving the 1099-K in early 2023.

How it works

If you sell items online for extra cash and earn more than $600, you’ll be getting a 1099-K. If you occasionally rent a property that you own and charge more than $600, a 1099-K will be sent to you. Or if a client asks to remit payment through PayPal, $600 or more will trigger a 1099-K.

Each year, hundreds of billions of dollars flow through third party apps like Venmo, CashApp and SnapCash. This new, tougher tax law is designed to make it harder for individuals to fail to report income on lower-cost transactions.

Suggestions for good record-keeping

Here are some ideas to keep a close eye on the tax implications of your P2P transactions:

  • Confirm the numbers. Mistakes happen, so check 1099-Ks against your payment receipt records.
  • Report the information correctly on your tax return. Include the numbers from each 1099-K you receive and ensure you report all income from all types of payments received.
  • Maintain detailed records. This can help demonstrate support for your income and deductions.

Also keep in mind the 1099-K does not account for fees, chargebacks or other costs and refunded amounts. The gross amount is unadjusted and, according to the IRS, is not to be adjusted.

What if the amount on your 1099-K is wrong?

Contact your P2P provider to request a corrected form. The name of the P2P and a phone number will be located in the upper left corner on the form.

If you are unable to get a corrected 1099-K, the IRS will allow an explanation to be attached to your tax return, along with the corrected amount of your income on the return.

Remember, if you use Venmo and several other P2P providers to accept payments, you could receive 1099-Ks from all of them, depending on which ones meet the $600 threshold.

Reach out to the experts

For more information on protecting your side hustle or small business from unexpected tax liabilities, give us a call at (973) 301-2300 to see if a tax planning session may be right for you.

Leveraging Third-party Consultants to Give Your Organization a Competitive Edge

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Lack of specialized knowledge, technology and resources can make it challenging for organizations to complete all essential tasks in-house.

So it’s no surprise that roughly 300,000 U.S. jobs are outsourced each year.

Depending on your needs, third-party consultants can lend their expertise to a specific project like a software implementation, oversee ongoing needs such as executing on a marketing strategy, or assisting with improvements like optimizing departmental workflows.

According to Indeed, the most commonly outsourced jobs include customer support, IT and HR.

Here are the top reasons that companies outsource:

  • Free up internal resources. In today’s business climate, time is a hot commodity. Successful companies would rather spend their resources on revenue-generating endeavors. By outsourcing routine or more specialized services, you can take back more hours in the day to propel the business forward.
  • Gain an impartial view. Tenured employees are valuable to any organization. But eventually, you may be looking for an outside perspective, fresh ideas and deeper insights. Third-party consultants can offer these benefits without adding to your headcount.
  • Access the latest technology. If your company isn’t on the cutting edge of technology, a third party can offer the best, up-to-the-minute technological advancements to improve your workflow, output and customer experience. For example, prior to the pandemic our firm invested in virtual meeting capabilities to allow us to serve more clients in diverse geographic areas — a system that allowed us to remain fully operational and keep clients and staff safe during the pandemic.
  • Save money. When outsourcing, you’re paying trained professionals solely for the services you need. You don’t have to worry about providing benefits and insurance or incurring onboarding and training costs. Instead, third parties often charge an hourly rate or establish a retainer for the assigned job duties.
  • Improve service. Outsourcing can help improve your service — from speed to efficiency to quality. If a task or function is not within your team’s wheelhouse of expertise, passing it along to a specialized third party can enhance overall results.

 What’s the catch? There’s always a risk

Managing third-party risk is an ongoing process. Consultants often have access to sensitive company financials or client data, so preventive measures are critical:

  • Carefully vetting consultants
  • Limiting shared data
  • Implementing network segmentation
  • Routinely monitoring accounts

By understanding the risks and creating a strong line of defense, your organization can maintain peace of mind while reaping the benefits of outsourcing.

Find out how Magone & Company can play a vital role on your team

Are you looking to fill a specific financial role? From bookkeeping to small business accounting to CFO services, Magone & Co can help organizations like yours operate more efficiently — without investing in expensive staff and technology infrastructure. Get in touch to see how we can help.

Getting Ahead of 2023 IRS Cryptocurrency Reporting Requirements

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Know those 1099-B forms that show up at tax time from your broker? Well, if you’re dabbling in cryptocurrency, you’ll soon be seeing more of them.

Starting in 2023, U.S. legislation now extends the same transaction reporting rules to cryptocurrency exchanges, custodians or platforms (e.g., Coinbase, Gemini or Binance), as well as digital assets, such as cryptocurrency (e.g., Bitcoin, Ether or Dogecoin). The same legislation also puts into effect cash reporting rules for payments of $10,000 or more to cryptocurrency. That means businesses accepting payments of $10,000+ in cryptocurrency will have to report those earnings to the IRS (using Form 8300).

How is this different than in the past?
The legislation, enacted in 2021, expanded the definition of “brokers” who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets (also known as virtual currencies) on behalf of another person (for example, cryptocurrency exchanges). Thus, any platform on which you can buy and sell cryptocurrency will have to report digital asset transactions to you and the IRS at the end of each year.

The cryptocurrency exchanges/platforms will have to gather information from customers, so that they can properly issue Forms 1099-B. But it’s not yet known whether an exchange/platform will have to file Form 1099-B itself (modified to include digital assets) or some other new IRS form.

Digital assets defined
For these reporting requirements, a “digital asset” is any digital representation of value recorded on a cryptographically-secured distributed ledger or any similar technology. The definition could also potentially include some non-fungible tokens (NFTs) that use blockchain technology for one-of-a-kind assets like digital artwork.

Separate from the broker reporting rules, a business that receives $10,000 or more in cash must report the transaction to the IRS on Form 8300. For this cash reporting requirement, businesses will treat digital assets like cash.

What to expect moving forward
If you use a cryptocurrency exchange or platform, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so.

Cryptocurrency exchanges and platforms, in addition to collecting information from their customers, will begin tracking the holding period, and the buy and sell prices of the digital assets in your accounts. Be aware that transactions subject to the new reporting rules will include not only the selling of cryptocurrencies for fiat currencies (government-issued currency, such as the U.S. dollar), but also exchanges of cryptocurrencies for other cryptocurrencies. 

It’s also good to keep in mind that the cryptocurrency exchanges or platforms may not have all the information they need to meet their reporting requirements under the new rules. So be patient, because it may be a challenging first year to get the information you need.