By John Aaron, CPA
Butler, Lavanceau & Sober, LLC
The IRS will look deeper into the digital payment service accounts of small businesses, freelancers and independent contractors, according to an article just published in The Guardian.
If 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 IRS”.
The article goes on to say that “you should be reporting those amounts as income anyway. But the reality is there are 30 million small businesses, freelancers, solo-preneurs and independent contractors in the US 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”.
The article cautions that “You can also expect more questions this year from your payment service provider” such as your Social Security Number or employer tax ID. The takeaway: IRS computers will be able to match the income reported on your tax returns with the amounts you get paid by the apps, regardless of the amount. Your best defense is to have a separate bank account for your business and keep your books up to date.