The Accounting Guys - Blog #1099

IRS Crackdowns on Digital Payment Platforms: What You Should Know

Tue, 10 Jun 2025 10:30:00 -0700

Over the last decade, mobile payment platforms like Venmo, PayPal, Zelle, and others have become nearly as common place as credit cards. They’re used by individuals and businesses alike, for both goods and services, at farmer’s markets and in salons. But as these digital payment methods have grown in popularity, so has scrutiny from the IRS. If you use any of these platforms to collect payments for business purposes, it’s important that you ensure you’re handling those payments in the same manner you would handle your other business income. Keep reading to learn what you need to know about the latest IRS rules for digital payments, their implications, and how you can keep your business compliant.

Understanding the Rule Changes

Historically, payment platforms only needed to issue a tax form (specifically, Form 1099-K) if a user processed more than 200 transactions and earned more than $20,000 in a year. However, this threshold was lowered drastically via the American Rescue Plan Act, enacted in 2021; originally intended to take effect for the 2022 tax year, implementation was delayed. However, the IRS has now confirmed that enforcement is underway.

As of the 2024 tax year, digital payment platforms are required to issue a 1099-K form for any user that receives more than $5,000 in payments for goods and services. This threshold is low enough that even casual earners and side hustlers will likely see a change in their tax reporting and forms. It’s also worth noting that the IRS has expressed the intent to lower this threshold even more in future years; so, if you’re collecting only a few thousand dollars in digital payments each year, prepare for this tax form in the near future.

What’s Considered Taxable Income?

This might sound like a simple question when looked at from a business perspective, but for digital platforms that can be used for both personal and business purposes, it’s an important one to ask. Venmo, Zelle, CashApp, and other such platforms aren’t able to differentiate between the payment your friend sent you for their portion of lunch and the payment a customer sent you for the goods you sell online.

Only payments that represent earned income—meaning you provided a good or service in exchange for that payment—are taxable. However, if you’re receiving both types of payments into one PayPal or Venmo account, you may exceed the new $5,000 threshold and mistakenly trigger a 1099-K.

The Right Way to Handle Digital Payments

The complexity of handling taxes for digital payment platforms stems from the recent shift in how these platforms are used. Essentially, people used these platforms for personal payments for so long that, when they started accepting digital payments for goods and services, it didn’t occur to them to change how they used it. Payments of both types go to the same account, and you’re left with inaccurate tax reports and a mess to clean up.

If you want to avoid this kind of confusion with your business’s digital payments, here’s what you should do:

Separate your business and personal accounts. This is absolutely essential and will dramatically simplify your tax reporting for your business income. Set up dedicated business profiles on all digital payment methods you accept, and link them to a business bank account.
Label your transactions. Always include clear notes or memos on payments you send out; this is most important for your business account, but a good habit to implement on your personal account as well. This helps you track your expenses more easily and keeps your payment accounts organized.
Maintain thorough records. Regardless of whether or not you receive enough digital payments to trigger a 1099-K, all business payments you receive are still considered taxable income. We’ll repeat that, because it’s important: All digital payments to your business are taxable income, even if you don’t receive a 1099-K. So, keep invoices, bank statements, and other documentation that supports your reported earnings and expenses for when you file your tax return.
Use accounting software. Don’t rely on the payment platform’s records alone. Consolidate all of your payments into one software program for easier management and reporting of your income.

Receiving a 1099-K Form in Error

Let’s say that you didn’t separate your business and personal accounts just yet, and the combination of the two types of payments mistakenly triggered a 1099-K from the payment processor. That form means the incoming payments on your digital payment account have now been reported to the IRS as earned income. So, what do you do?

First and foremost, don’t ignore it. Whether or not you’re certain it’s a mistake, the IRS has received a copy of that form as well. If you don’t address it, the next form you receive may be a notice of overdue taxes or an upcoming audit.

Instead, compare the form to your own records, and reconcile the amount on the form with your own income reports. Contact the payment platform that issued the 1099-K and file a dispute or request a correction of the form. You can also include a written explanation alongside your tax return to outline why you’re reporting less income than what’s shown on your 1099-K.

Need Help? TAG Us In

Handling the taxes for your business—whether it’s a side hustle or your main source of income—can be complicated. If you’re not sure how to handle an incorrect 1099-K, need help filing your first business return, or need advice on how to tax plan for your growing company, contact The Accounting Guys. Our business tax experts in Provo can assist you with all of your business tax planning and tax preparation needs. Contact us to schedule an appointment today.

SOCIAL: The IRS has tightened its restrictions on tax reporting for digital payment platforms. If you receive business payments through PayPal, Zelle, Venmo, or similar apps, here’s what you need to know.

The Pros and Cons of Amending a Tax Return

Fri, 02 May 2025 13:12:29 -0700

When it comes to filing taxes, doing it accurately is extremely important. But unfortunately, even the most diligent taxpayers can make mistakes or encounter new information after their return has been filed. Luckily, the IRS offers a way to address these situations: amending your tax return. While this can be beneficial, it’s not always the right solution for everyone. It’s important that you understand the pros and cons of amending a tax return so you can better decide whether or not amending your tax return is the right path for you

What Is an Amended Tax Return?

An amended tax return is a corrected version of a previously filed federal income tax return—think of it as submitting a revised version of an assignment to your teacher. Form 1040-X allows taxpayers to correct errors or omissions that impact the return’s accuracy. Common reasons for amending a return include reporting additional income, claiming or removing deductions or credits, correcting filing status, or updating dependent information.

Pros of Amending a Tax Return

One of the most compelling reasons to file an amended return is to recover overpaid taxes. If a taxpayer discovers that they missed a valuable deduction or credit—like the Earned Income Tax Credit, Child Tax Credit, or a business expense—they may be eligible for a refund. Amending the return ensures that the IRS recognizes these deductions an d credits, potentially giving you a significant financial benefit.

Filing an amended return also demonstrates a proactive commitment to accuracy on your taxes. If a taxpayer realizes they made a significantmistake—like underreporting income or miscalculating tax liability—filing an amendment can help correct the issue before it draws unwanted scrutiny from the IRS. This step may also reduce penalties or interest that could accrue on unpaid taxes.

It’s also important to remember that an error on a tax return can have long-term consequences, especially if you’re audited later. Amending a return can correct discrepancies that might otherwise raise red flags. For example, if a third-party payer (such as a client or employer) issues a corrected Form 1099 or W-2, it’s wise to align your return with the corrected documentation to avoid triggering an IRS notice or audit.

Cons of Amending a Tax Return

While amending a return is a legal and responsible action, it may prompt closer scrutiny by the IRS—particularly if the changes are substantial or involve previously underreported income. In some cases, an amendment may serve as a trigger for a full audit. It’s important that you are prepared to provide supporting documents for all changes made in your amendment.

You should also be aware that amended returns are processed manually by the IRS, which means significantly longer processing times. While electronic filing of Form 1040-X is now available for recent tax years, delays are still common. It may take up to twenty weeks or longer to receive a response or refund. This is not ideal for taxpayers expecting a quick financial return from the correction.

Please also note that there is a statute of limitations on filing an amended return. Generally, taxpayers must file within three years from the original filing date or within two years of paying the tax, whichever is later. Failing to amend within this window can mean forfeiting potential refunds or giving up the ability to correct costly errors.

Of course, amending a tax return is not as simple as checking a box—it involves recalculating tax liability, preparing Form 1040-X, and explaining the changes clearly to the IRS. Inaccurate amendments can create further complications, including increased tax liability or triggering an audit. That is why we always strongly recommend working with a CPA to amend your tax returns.

Should You Amend Your Return?

You should never deliberately allow a major error on your tax forms to go uncorrected. However, not all mistakes require an amendment. Minor math errors are typically corrected by the IRS during processing, and omitted forms may be requested without the need for a full amendment. Before filing an amendment, we suggest consulting with a CPA or tax professional to determine whether the benefits outweigh the potential risks.

If you have discovered new information that impacts your filed tax return, or if you believe you made an error on your return, we encourage you to reach out to us at The Accounting Guys. Our tax experts in Provo, Utah, can work with you to determine whether or not you need to file an amendment and, if so, get one submitted in a timely manner. Give us a call to schedule a consultation.

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Essential Tax Forms & Documentation For Your Tax Appointment

Wed, 12 Feb 2025 10:07:23 -0700

Income Tax Forms

There are many different types of income tax forms, depending on the type of income you’ve received, and most people receive more than one kind of income throughout the year. Here are some of the most common income tax forms our clients receive. Please bring whatever forms are applicable to you:

W-2 – You will receive this form if you are a registered employee of a business. This form shows your annual wages and the amounts you have had withheld from your checks throughout the year.

1099-MISC – You will receive this form if you are an independent contractor or self-employed. You should receive one of these from every client who has paid you $600 or more during the year.

1099-DIV – You should receive this form if you have received any dividends or other distributions from your investments over the last year.

1099-INT – You will receive this form if you have collected any interest over the course of the year. At the very least, you will likely receive one of these from your financial institution to report the interest you’ve earned from your savings account.

K-1 – You will receive this form if you are a shareholder in a trust, S corporation, or partnership.

If you received any of these income tax forms, please bring them with you. You should also bring documentation for any other sources of income you’ve received throughout the year.

Sale of Stocks

Please bring any information and documentation you have pertaining to any stocks you’ve sold in the last year—particularly the purchase date and the purchase price.

Sale or Purchase of Home

If you’ve purchased or sold a home in the last year, please bring the settlement statements for the sale when you meet with your tax accountant in Provo.

Income and Expenses for Rental Units

If you own any rental properties, you will need to provide detailed documentation for the rents you’ve received, as well as a list of any expenses you’ve paid on the unit. Expenses can include the mortgage for the unit, property taxes, repairs costs, cost of advertising the unit, and so on.

Proof of Medical Expenses

If you’ve had very high medical expenses in the last year (more than 10% of your income), please bring documentation for those expenses to your tax interview. Note that medical expenses that have been reimbursed by your insurance company do not qualify.

Proof of Charitable Contributions

If you have donated cash or items to charity in the last year, please bring documentation to support these contributions. Your donations of both money and items should be itemized and include the date the donation was made, as well as the value of the item donated. Please note that only donations to certified non-profits qualify as a charitable contribution.

Mortgage Interest and Taxes

All homeowners will receive a 1098 form showing the mortgage interest and property taxes that you have paid over the last year. Please bring this to your tax interview.

Tuition and Education Costs

Students should receive a 1098-T tax form, documenting the amount paid in tuition over the last year. Please bring this with you, along with a detailed list of what you paid for books, lab fees, and any other expenses related to your schooling.

Proof of Health Insurance

You will need to provide proof of health insurance coverage for yourself and your dependents when filing your taxes. If you have employer-provided health insurance, your employer should provide you with the proper forms. If you have healthcare through the Obamacare marketplace, you will receive a 1095-A.

SSNs & DOBs

Please be sure to have the Social Security number and date of birth on hand for yourself and all of your dependents. This is especially important for any new dependents you may have, such as a new child or spouse.

Last Year’s Return

If you are a new client to The Accounting Guys, please bring a copy of last year’s tax return when you meet with one of our CPAs in Provo.