If you run a business and receive payments through third-party settlement organizations (TPSOs), expect significant changes in 2022. To improve voluntary tax compliance, the American Rescue Plan Act (ARPA) now requires TPSOs to significantly increase reporting of financial transactions for goods and services. TPSOs such as Zelle, Paypal and Venmo must report transactions paid to your business when they exceed $600 within the year.
Reporting is done by filing a Form 1099-K (Payment Card and Third-Party Network Transactions). Previously, Forms 1099-K were required when transaction totals exceeded $20,000 and the total transactions exceeded 200.
The tax code allows a taxpayer to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. However, the activity must be conducted in a businesslike manner and other requirements must be met. Recently, three different taxpayers have battled with the IRS and the U.S. Tax Court over business expenses and losses. One of the taxpayers prevailed. Here are quick summaries of the cases:
Generally, businesses can deduct only 50% of the cost of business meals and beverages. The 2020 Taxpayer Certainty and Disaster Relief Act increased that deduction to 100% for meals purchased from a restaurant in 2022 (and 2021).
The IRS recently announced that use of that temporary full deduction has been expanded. Employers and self-employed persons who use per diem allowances to account for business-related travel may deduct 100% of the meal portion of the per diem allowance paid or incurred in 2021 and 2022. (Notice 2021-63) Here’s the announcement.
Businesses should use Form 1099-NEC, “Nonemployee Compensation,” to report payments of $600 or more to nonemployees during 2021. Be aware that such payments could be subject to backup withholding in certain cases. Payers of nonemployee compensation during 2021 generally are required to file these forms by January 31, 2022.
Backup withholding could apply if the recipient of compensation hasn’t provided a Taxpayer Identification Number (TIN) to the payer or if the IRS notifies a payer that a TIN doesn’t match the name in IRS records. A TIN can be a Social Security, employer identification or individual taxpayer identification number. Click here to learn more from the IRS.
If your business makes structural adaptations or other accommodations for employees or customers with disabilities, you may be eligible for federal tax breaks. For example, there’s a (non-refundable) disabled access tax credit for small businesses that have expenses for providing access to persons with disabilities.
An eligible small business is one that earned $1 million or less or had no more than 30 full-time employees the previous year. There’s also an architectural barrier removal tax deduction. Businesses may claim a deduction of up to $15,000 a year for qualified expenses on items that normally must be capitalized.
Please contact Judith Barnhard via our online contact form for more information.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.