Financial Expert Explains The IRS New Updates and How They Affect Small Business Owners
Money

Financial Expert Explains The IRS New Updates and How They Affect Small Business Owners

Courtesy of Donald Williams of Williams Accounting & Consulting

It was recently announced that as of Jan. 1, mobile payment apps like Venmo, PayPal, and CashApp are required to report commercial transactions of $600 or more to the Internal Revenue Service, NBC News reports.

The change to the tax code was signed into law as part of the American Rescue Plan Act and only applies to charges for commercial goods or services, not personal charges to friends and family.

Amid tax season and the IRS new requirement for individuals and small business owners, financial expert and owner of Williams Accounting & Consulting Donald Williams is offering BLACK ENTERPRISE readers some free advice.

Can you explain how the IRS can now legally require individuals and businesses to report $600 or more of the earnings that they receive on CashApp, Zelle, or Venmo?

“Actually, individuals and businesses were already required to report income received on PayPal, CashApp, and Venmo,” Williams said. “If you receive any type of income you’re required to report it to the IRS. That has never changed, but we do know that people either intentionally or unintentionally neglect to report their earnings.”

“The only change that has occurred is that the American Rescue Plan of 2021specifically outlines these services as “third-party settlement organizations,” stating that these apps or services are supposed to provide businesses and individuals with a 1099-K for all business-related or sales transactions over $600. Companies like PayPal had already been doing this.”

“Zelle, on the other hand, acts more like a messaging service between financial institutions, similar to Western Union. It’s similar to selling goods on the side of the road and then all of the sudden the government comes out with a mandate for people selling on the side of the road.”

“It’s also important to note that this is just for business transactions or sales. If you’re loaning a friend $2,000 you won’t be taxed. However, you want to make sure with your transactions you’re filling out the memo or notes section so that you have a record just in case you accidentally receive a 1099-K for a personal transaction.”

What does this mean for freelancers, contractors, and business owners?

“For individuals and businesses that use CashApp or Venmo for business or work-related transactions, they need to expect to pay taxes on their earnings from these apps no different from if they received a check from a contracting job,” Williams said.

“Freelancers, contractors, and business owners should be used to submitting a W-9 when they receive a new client or project. And at the beginning of the next year, they receive a 1099 for the work that they did during the previous fiscal year. With CashApp or Venmo, they will now receive a 1099-K from CashApp or Venmo to go in with their tax filing.”

Is this new decision a reflection of the IRS targeting small businesses?

“Absolutely not. This is the IRS’ way of enforcing something that was already in place,” Williams said. “Whether you’re a small business or a large corporation, you’re required to pay taxes on your earnings.”

“And businesses usually pay taxes multiple times a year, instead of having their taxes withheld like an employee. One of the most common ways that businesses receive an unexpected huge tax bill is by not paying their taxes properly. This is just the IRS’ way of making sure that there’s a system in place to help business owners because the responsibility falls on the individual or business to report this income. However, now these apps are held accountable as well.”

Are there additional new updates and regulations from the IRS that taxpayers should watch out for this tax season?

“Recently, the IRS announced that it is going to transition away from using a third-party service for facial recognition to help authenticate people creating new online accounts,” Williams explained.

“The IRS will make the transition within the next couple of weeks to prevent larger disruptions to taxpayers during the filing season. The transition will not have an impact on the current tax season.”

Courtesy of Donald Williams of Williams Accounting & Consulting

Donald Williams is a financial expert and trusted business consultant that helps individuals, small businesses owners, and entrepreneurs find and build the financial foundation they need to succeed through his company Williams Accounting & Consulting.

With a Bachelor of Arts degree from Southern University of New Orleans and a Masters of Arts honors degree from Clark Atlanta University, both in accounting, Mr. Williams’ career has been fueled by an industry he loves.

In 2005, he launched Williams Accounting and Consulting in New Orleans. Just one year later, he successfully opened his second location in Atlanta. To date, he has grown his clientele to more than 1,000 individuals and businesses along the Southeast coast.


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