The Accounting Guys - Blog #Tax Forms

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.

5 Tax Tips To Help You For The 2019 Tax Season

Wed, 12 Feb 2025 10:59:02 -0700

1. Check Your Withholdings

The tax reform laws that were implemented for 2018 caused the automatic withholdings on most people’s paychecks to drop. While this likely meant larger paychecks for you throughout the year, it will also impact your taxes. If you’re used to receiving or owing roughly the same amount every year, this will most likely change due to your decreased withholdings; you’ll be refunded less than normal, or you may owe more than you usually do. In some cases, those who typically received a refund may end up owing.

Now is a good time to review your withholdings and compare them to last year, so you aren’t surprised by the change in your tax situation this year. The IRS also has a tool to help you calculate if you’re withholding the proper amount from your paychecks. Use their Paycheck Checkup calculator to find out how much you should withhold from each paycheck; if you need to make adjustments, file a new Form W-4 with your employer.

2. Get an Estimate of Your Tax Liability or Refund

Even if you’re not ready to file just yet, the IRS recommends calculating what your tax liability or refund will be now, so that you can properly prepare for it when you file. The tax reform will likely impact refunds and tax bills significantly, so even a rough estimate can help you to get funds in order to handle a larger tax liability, if necessary.

You should also be aware that anyone claiming the Earned Income Credit or the Additional Child Tax Credit will have their refunds delayed at least until the middle of February. And, with the government shutdown delaying the IRS’s tax season, those delays could last much longer.

3. Renew Your ITIN If Needed

Certain nonresident aliens, resident aliens, and dependents or spouses are assigned an individual taxpayer identification number (ITIN) in place of a Social Security number. Your ITIN plays the same role as an SSN on your tax return; however, unlike an SSN, an ITIN expires. So, if you have an ITIN that might expire before you’re able to file your return, you should submit a renewal application now to avoid any potential complications with the IRS.

4. Look into New Tax Forms

The tax reform laws have also updated some fairly common tax forms. For example, Form 1040 has been updated and shortened to more closely resemble Forms 1040-EZ and 1040A. However, it also now requires additional schedules to attach in certain circumstances. Take a little time to check out the shortened Form 1040 and familiarize yourself with it. This will help you to get a head start and make it less confusing once you’re ready to file.

5. Know Your Resources for Help

Even the IRS is aware that this tax year is going to be more complicated than usual, and there’s bound to be a lot more confusion. However, there are many resources that you can turn to for assistance, including online resources through the IRS website, and the Volunteer Income Tax Assistance program. Do some research and find where you can turn for help when you have questions.

Our team of experienced CPAs is always available to offer you tax help in Provo and answer any questions you might have regarding the reformed tax law, or to assist you with filing your taxes. Contact us today to set up an appointment.

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.