Bookkeeping Catch-up for New Small Business Tax Reporting
Small businesses and those that use them are going to find tax reporting a bit more challenging after the 2023 tax season. That’s because the 1099-K reporting threshold that applies to third party payment processors has moved from what was $20,000 down to $600 in 2024 and forward. The change was expected for 2023 but has now been delayed by the IRS due to significant notice of general confusion about how the change will apply. Instead, the adjustment in 1099-K reporting will be graduated down to $5,000 and then $600 over the next few years.
The 1099-K reporting change is a tremendous paradigm shift and a massive amount of new reporting that the Internal Revenue Service will now have at its disposal. Likely to be processed by a tremendous amount of scanning and inputting into databases to then be matched with business reporting, unreported income is going to start adding up with additional questions, audits and possible penalties come 2024.
How to Prepare
The big step anyone can take involves getting accounting and bookkeeping records up to speed to track any services paid for to other vendors, whether in paper, cash or online. Especially with the use of payment tools like PayPal, the reporting of support services is going to impact thousands of businesses in their additional filings of whom they paid. Additionally, it’s also going to impact ten times as many recipients who need to make sure the same income has been reported on their side for taxation. If not, then the IRS has fair game to go after unreported income, a target that the 1099 reporting has been intended to solve for decades.
Remote Bookkeeping to the Rescue
Remote bookkeepers are ideal for this new 1099-K challenge that’s coming. They have all the necessary skill and training to understand standard accounting procedures, tracking, transaction processing and ledger input. They can handle data movement, processing and transfer through standard data files like CSV and Excel, and they are adept at working in the cloud with cloud accounting tools, shared documents, and related input online. It’s a win-win for the business as well as the growing bookkeeping resources available (a good example business we found is https://myrqb.com/ who can do bookkeeping for anyone in the USA from their location in Maine).
Thousands of small businesses that rely on the Internet are going to be impacted by the new reporting rule. Essentially, anyone who used another service, which is common in the digital world with outsourcing non-core work, is going to be caught up in the new IRS changes. For those who have all their transactions in one place, such as one payment processor, then life is going to be fairly straightforward with a single report or two. However, for those using multiple payment tools, it’s going to be very complicated, and these small business owners should probably take the 2024 Christmas break to get started on their tax work early instead of waiting until April 2025. Again, remote bookkeeping can help now, including 24/7 support around the clock versus only 8 hours a day.