The IRS Tax Form 1099 K, Payment Card and Third-Party Network Transactions, is used to report credit/debit card transactions as well as third-party network payments. Minimum transaction reporting thresholds for third-party network transactions have been reduced from $20,000 plus 200 transactions in years prior to 2023 to $600 regardless of transaction volume for years 2023 and after.
If you are a sole proprietorship, including those operating in the gig economy, it is important that your business books and records accurately reflect your business income, including any amounts reported on Form 1099-K. You must report all income you receive on your income tax return.
Why a tax form 1099 k?
The tax form 1099 K will assist you in calculating your small-business or side-gig income so that you can report it to the IRS. If you’re crushing it with your side hustle or weekend gig, using third-party platforms like CashApp, SquareUp, Venmo, PayPal, or others to accept payments from your customers can be a quick and convenient way to accept payments. Consider the 1099-K form to be a tool for accurately reporting your business income from Payment Settlement Entities (PSEs) and debit and credit card payments.
One of the most common errors made by business owners is failing to keep personal and business funds separate. This error is also a common target for IRS scrutiny during audits. Separate your personal and business accounts at all times. You should keep track of all invoices, transactions, and deductions that may impact how you file your taxes. Establishing your business and opening a separate account will make it easier to do this during the tax season.
You may be asking yourself this question,
Do I have to send a Tax Form 1099 K to the contractors I hire?
If you hire a contractor and pay them through a third-party payment processor or with credit cards, you won’t have to send them a Form 1099-K. The payment platform will have to send Form 1099-K to the contractor themselves once their earnings exceed $600 across the tax year.
However, if you hired and paid a contractor more than $600 using other methods of payment, such as cash or checks, you must send them a 1099-NEC.
When it’s time to report the information on your Form 1099-K, make sure you read the 1099-k instructions carefully and understand each section. If you require further assistance, please reach out to your accountant or financial advisor.
For more Micro-Small Business knowledge visit our blogs or subscribe to our Newsletter, Cerebral Dope.
Disclaimer: This resource is for information purposes only. The company is not directly related to The Dope Million in anyway. Always check your resources’ original website for updated information.