The New Year introduced a new tax rule that will allow the Internal Revenue Service (IRS) to obtain information on small business income through transactions on popular payment apps.
According to FOX Company, the new rule only applies to payments received for goods and services. Many small businesses use these apps to receive payments from customers.
This means that money exchanged in the form of gifts or favors is not taxable and goods sold at a loss are also excluded.
The change in tax law was ushered in with the adoption of the US bailout last spring. This will allow the IRS to determine the income that business owners have actually earned from payment app transactions, regardless of what they report on their Form 1099-K.
Many of these payment apps have already sent Form 1099-K to users with business accounts, especially if their gross income was over $ 20,000 or if they had made 200 separate transactions in a calendar year.
A Form 1099-K is an informational IRS tax document used to report payments received by a business or individual for the sale of goods and services that have been paid for through a third-party network.
“The IRS will be able to cross both our report and yours”, PayPal said.
Even though the new rule went into effect with the new year, it does not apply to the 2021 tax season. Small businesses do not need to take this into account until the 2022 tax season begins. next year.
This story was reported from Atlanta.