IRS: Never mind the myths; know the facts about receiving a Form 1099-K in 2024

WASHINGTON — To help taxpayers with filing, the Internal Revenue Service today debunked some common myths to help taxpayers understand what to do with Form 1099-K.

Following feedback from partners and to help avoid taxpayer confusion, the IRS announced in Nov. 2023, that the reporting threshold for Form 1099-K, Payment Card and Third-Party Network Transactions, would not change for 2023. The reporting threshold requirements remain over $20,000 in payments and over 200 transactions.

The IRS continues to see misinformation circulating about why taxpayers may or may not have received a Form 1099-K. Here are some common scenarios involving these forms. More information is also available at IRS.gov for What to do With Form 1099-K and frequently asked questions.

1099-K facts vs myths

Myth: People will get a Form 1099-K from friends and family sending them personal payments.

Fact: Payments from friends and family should generally not be reported on a Form 1099-K. Form 1099-K reports payments for goods or services and should not report personal payments like rent, dinner, travel and other gifts or reimbursements gifts, no matter the amount. Generally, in payment apps, the default is personal payments unless the sender designates that they’re purchasing goods or services, or it is designated a business account.

Myth: If taxpayers didn’t receive a Form 1099-K, they don’t have to report income.

Fact: According to federal law, all income is taxable unless it is specifically excluded by tax law. Taxpayers should report any profits from selling goods or services, regardless of if they receive a Form 1099-K.

Myth: Individuals won’t get a Form 1099-K if they sold goods or services under the $20,000 and 200 transactions payment threshold set for 2023 and previous tax years.

Fact: The 2023 federal reporting threshold of over $20,000 and 200 transactions is a reporting requirement, but companies may still send a Form 1099-K for goods or services payments that are less than that amount. Payment apps and marketplaces that have held backup withholding for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K. Also, their state may have a lower reporting threshold, which could result in receiving a Form 1099-K, even if the total gross payments they received in the year did not exceed the federal reporting threshold.

Myth: Taxpayers owe taxes on the gross amount reported on the Form 1099-K.

Fact: The form provides the gross, or total amount of payments individuals got per app or marketplace. Just because a payment is reported on a Form 1099-K does not mean it is taxable. Taxpayers will need to use the form and other records to determine their actual tax liability when they file their tax return.

More information is available to help determine an individual’s tax obligations at IRS.gov What to do With Form 1099-K.

Myth: People can only get a 1099-K if they’re running a business.

Fact: People may receive a Form 1099-K from payment apps or online marketplaces they used to sell goods or services, or accepted payments from a bank card. See Form 1099-K FAQs on Fact Sheet 2024-03 for more information.

Myth: People don’t need to do anything with their Form 1099-K.

Fact: Individuals should use the information on the Form 1099-K with their other tax records to determine their correct tax owed. See Understanding your Form 1099-K and visit the Form 1099-K frequently asked questions for more information.

Someone who receives a Form 1099-K when they shouldn’t have should take these steps.

Myth: There’s nothing available to help individuals understand their Form 1099-K.

Fact: The IRS has a variety of sources to help people understand their form and report their taxes accurately. See IRS.gov Understanding Your Form 1099-K, What to do with Form 1099-K and Form 1099-K Frequently Asked Questions.

Corporate Transparency Act Reporting Fact Sheet

Almost all entities (including single member LLCs) will have some filing requirement under the Corporate Transparency Act (CTA). If your entity was in existence prior to December 31, 2023 the deadline to file is January 1, 2025. If your entity was formed on or after January 1, 2024 but before January 1, 2025 you must file within 90 days. Entities created after January 1, 2025 must file within 30 days.

Businesses generally exempt from filing:

• Large companies defined in the CTA as businesses with:
  • Over 20 full-time employees working in the United States AND
  • A least $5 million in gross receipts or sales reported on the previous year’s tax return
• Certain tax-exempt entities
• SEC reporting securities issuers
• Registered investment or insurance companies
• Banks and credit unions
• Governmental authorities
• Certain inactive entities in existence prior to January 1, 2020

Additional filing exemptions can be found on FinCen’s website.

New Reporting Requirements Under the Corporate Transparency Act

Background  

The Corporate Transparency Act (CTA), part of Congress’s National Defense Authorization Act (NDAA), was passed in 2021. Its purpose is to improve business ownership transparency, particularly for small businesses (1). The goal is to increase awareness regarding an entity’s structure, ownership, and monitoring for potential illicit activities, including money laundering. Harsh penalties can be assessed for non-compliance.

Beneficial Ownership

The CTA requires disclosure of beneficial ownership information for most entities and their respective owners. A beneficial owner is someone who has the power or substantial authority to exercise control over the entity. The CTA refers to individuals who, either directly or indirectly, exercise substantial control or own at least 25% of the capital or profit interests of the entity (1). Substantial control can denote individuals who possess roles such as a senior officer, or an important decision-maker, and can make choices that impact the business, finances, and structure. It is important to note that an individual who is an intermediatory or acts on behalf of another, such as the trustee of a trust, may possess indirect ownership.

Reporting companies are not restricted to being domestic entities. If a foreign company is registered for business in any US state or jurisdiction the foreign entity must file under the CTA. However, some entities, including certain nonprofit entities, SEC reporting issuers, registered investment or insurance companies, banks, governmental authorities, and large companies are exempt from filing (2). Large companies are defined in the CTA as businesses with over 20 full-time employees working in the United States and having in excess of $5 million in gross receipts or sales reported on the previous year’s tax return (1). A full list of exempt entities can be found in the regulations.

BOI Report

The document that must be filed, called the Beneficial Ownership Information (BOI) report, is filed with the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S Department of the Treasury responsible for safeguarding the financial system (3). This document is not filed with the Internal Revenue Service and the information will not be publicly available. Entities in existence prior to December 31, 2023 have until January 1, 2025, to file their reports. Entities created after December 31, 2023 but before January 1, 2025 will have 90 days to file after receiving notice of creation (1). Any entities created on or after January 1, 2025 must file within 30 days. When there is a change of beneficial ownership, reports must be updated within 30 days. This can happen as a result of a sale, acquisition, merger, or family estate planning. If a company becomes aware of an error in its BOI report, it has 30 days to file a corrected report to avoid civil and/or criminal penalties.

Report Information

The report includes both the information about the business and its beneficial owners. Business details include the name and all trade names and DBAs, address, place of formation, location of principal place of business, and taxpayer identification number (TIN). Each beneficial owner must disclose their full legal name, date of birth, residential address, and provide a unique identifying document, such as a driver’s license or passport (2). This information is also required for newly formed businesses and for individuals who become beneficial owners. Reporting entities and beneficial owners have the option of requesting a FinCEN identifier, which is a unique identifier used to simplify the reporting process.

Company Applicants

Companies registered on or after January 1, 2024, will be required to report company applicants. There are two classes of company applicants. The first is the individual who directly files the document that creates or registers the entity and the second is the individual who is responsible for directing or controlling the filing (1). It is important to note that companies created before January 1, 2024 do not need to submit this information.

Penalties

There are potentially harsh penalties for filing false or incomplete information, as well as failing to file an updated report. These include both civil and criminal penalties depending on the nature of the offense. Fines are up to $591 per day until corrected up to $10,000 per violation and potential jail time of up to two years (2). Penalties are cumulative until the entity complies and are adjusted annually for inflation.

Conclusion

The Corporate Transparency Act (CTA) is a new addition to the landscape of legislation aimed at reducing criminal financial activities while increasing awareness about the ownership behind businesses. This new provision, effective January 1, 2024, requires beneficial owners to file the Beneficial Ownership Information (BOI) report with FinCEN in a timely manner to ensure compliance. Please contact us with questions or assistance in coming into compliance during 2024.

References

1. What to know about the Corporate Transparency Act | thomsonreuters.com
2. Beneficial Ownership Information Reporting | FinCEN.gov
3. What We Do | FinCEN.gov

If you have questions or concerns please call us at  856-727-0100

Important Quickbooks Desktop Product Changes!

Quickbooks recently announced that starting after July 31, 2024, Intuit will no longer sell NEW subscriptions of the following Desktop products in the US:

• QuickBooks Desktop Pro Plus
• QuickBooks Desktop Premier Plus
• QuickBooks Desktop Mac Plus
• QuickBooks Desktop Enhanced Payroll

 

Intuit is not changing:

• Existing Desktop Pro Plus, Premier Plus, Mac Plus, and Enhanced Payroll subscribers who may continue to renew their subscription after July 31, 2024.  They will continue to provide security updates, product updates, and support for existing subscribers for the time being.
• All QuickBooks Desktop Enterprise subscriptions will also continue to be available for purchase for new subscribers after July 31, 2024.

 

Quickbooks is encouraging current Desktop clients to move to QuickBooks Online.  We realize that some customers may prefer to stay on Desktop at this time which is still an option.

The non-subscription versions (2021 Version or older) of QuickBooks Desktop Pro, Premier, or Mac will still be functional however their versions will not be supported by Intuit.

If you have Pro Plus or Premier Plus and have been considering Desktop Payroll, we recommend purchasing a QuickBooks Enhanced Payroll subscription before July 31, 2024 or upgrade to QuickBooks Enterprise which includes integrated Payroll and can be purchased after July 31, 2024. Alternatively, QuickBooks Online Payroll is available to Desktop clients and is a standalone full-service payroll solution that also offers HR support, Health and 401K benefits.

If you already have a subscription version of Quickbooks (2022 or later), we recommend that you upgrade to the latest version of the software by July 31, 2024. QuickBooks Desktop 2024 includes the latest features and security updates. If you are on an active QuickBooks Desktop Plus subscription, you have access to QuickBooks Desktop 2024 with no additional charge as you simply have to install the update.

We wanted to share this note from QuickBooks as it pertains to their decision:

“We appreciate our customers loyalty to the Desktop platform over the years, and we will continue to support those customers on a Desktop subscription after July 31, 2024.  However, we highly encourage you to prepare for the future by moving online. There are many benefits enabled by an online platform that can’t be realized through desktop software, including time savings, the flexibility to work from anywhere, and a customizable ecosystem of connected business solutions.

Thank you for your business and your continued support of QuickBooks”

If you have questions or concerns – please email or call our on-site QuickBooks ProAdvisor Kristen Matkowsky at Kmatkowsky@g3cpa.com / 856-727-0100

Clarifying the Corporate Transparency Act

 Introduction
What is the Corporate Transparency Act (CTA)? That’s a great question! This piece of legislation, part of Congress’s National Defense Authorization Act (NDAA) passed in the beginning of 2021, is aimed at improving business ownership transparency, particularly for small businesses (3). In addition to this aim, its goal is to increase awareness regarding an entity’s structure and potential illicit activities, including tax fraud. We will review pertinent information including the provisions of the act, who qualifies, and what action you, or your accountant, need to take to ensure you are an informed and prepared business owner.

Beneficial Ownership
The CTA takes effect January 1, 2024, and requires disclosure of beneficial ownership information for certain entities from their respective owners. A beneficial owner is another way to say who has the power or substantial authority to exercise control over the entity. The Act refers to individuals who, either directly or indirectly, own at least 25% or exercise substantial control in the form of capital or profit interests (1). Substantial control denotes individuals who possess roles such as a senior officer, or an important decision-maker, and can make choices that impact the business, finances, and structure. It is important to note that an individual who is an intermediatory or acts on behalf of another may possess indirect ownership. Reporting companies, such as corporations, LLCs or LLPs, are not restricted to being domestic, but include foreign entities too. If a foreign company is registered for business in any state or jurisdiction, like a domestic entity that files a document with the secretary of state or similar office, the foreign entity qualifies. However, there are exempt businesses, including nonprofit entities, banks, insurance companies, and governmental authorities that already undergo identification requirements. A full list of exempt entities is provided via the reference link at the end of this email (1).

BOI Report
The document, called the Beneficial Ownership Information (BOI) report, will be filed with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S Department of the Treasury responsible for safeguarding the financial system (2). This document is not filed with the Internal Revenue Service and will not be publicly available. For most entities, they will have one year—until January 1, 2025—to file their reports, but for those created after the effective date, it will be 30 days after receiving notice of creation (1). Furthermore, if there has been a change of beneficial ownership, reports must be updated within 30 days of a change, such as a sale, acquisition, or merger. Alongside this, if a company becomes aware of an error in its BOI report, it has 30 days to file a corrected report to avoid civil and criminal penalties.

Report Information
The pertinent information filed in the report includes both the information about the business and the respective beneficial owners. For the business, details include the name or trade name, address, place of formation, location of principal place of business, and taxpayer identification number (TIN). For each respective beneficial owner, details include full legal name, date of birth, residential address, and a uniquely identifying document, such as a driver’s license accompanied with an image of that document (1). This information is also required for newly formed businesses and for individuals who become beneficial owners. Reporting entities have the option of requesting a FinCEN identifier, which is a unique identifier used to classify information according to which business it belongs.

Company Applicants
Companies registered on and after January 1, 2024, will be required to report company applicants. There are two classes of company applicants, and individuals will fall into one of the two categories. The first is the individual who directly files the document that creates or registers the entity and the second is the individual who is responsible for directing or controlling the filing (1). It is important to note that most companies will not need to undergo this process as they were created before January 1, 2024. As a point of clarification, accountants and lawyers could be company applicants depending on their involvement with creating or registering a reporting company.

Penalties
Understandably, there are penalties for filing false or incomplete information, as well as failing to file an updated report. These include both civil and criminal penalties depending on the nature of the offense. Typically fines range from $500 per day until corrected to $10,000 per violation and jail time up to two years (3). It is best to speak with legal counsel to fully ensure compliance is met.

Conclusion
Overall, the Corporate Transparency Act (CTA) is a new addition to the landscape of legislation aimed at reducing financial malpractice while increasing awareness about the ownership behind businesses. This increased awareness takes the form of the BOI report, which is intended to document the beneficial owners of certain qualifying entities. This new provision, taking effect as of January 1, 2024, will require those beneficial owners to file the Beneficial Ownership Information (BOI) report with FinCEN in a timely manner to ensure compliance. While the steps necessary to obtain the required information may be challenging, the action taken will not only enhance an individual’s understanding of a business but strengthen the larger network of domestic and international financial transparency.

References

1. Beneficial Ownership Information Reporting | FinCEN.gov
2. What We Do | FinCEN.gov

What to know about the Corporate Transparency Act (thomsonreuters.com)

Check IRS.gov for the latest information: No action needed by most people at this time

IR-2020-61, March 30, 2020

WASHINGTON – The Treasury Department and the Internal Revenue Service today announced that distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people. However, some seniors and others who typically do not file returns will need to submit a simple tax return to receive the stimulus payment.

Who is eligible for the economic impact payment?
Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.

How will the IRS know where to send my payment?
The vast majority of people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.

For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed.

The IRS does not have my direct deposit information. What can I do?
In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.

I am not typically required to file a tax return. Can I still receive my payment?
Yes. People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.

How can I file the tax return needed to receive my economic impact payment?
IRS.gov/coronavirus will soon provide information instructing people in these groups on how to file a 2019 tax return with simple, but necessary, information including their filing status, number of dependents and direct deposit bank account information.

I have not filed my tax return for 2018 or 2019. Can I still receive an economic impact payment?
Yes. The IRS urges anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return.

I need to file a tax return. How long are the economic impact payments available?
For those concerned about visiting a tax professional or local community organization in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020.

Where can I get more information?
The IRS will post all key information on IRS.gov/coronavirus as soon as it becomes available.