Delayed Implementation of $600 TPSO Reporting
The American Rescue Plan passed in 2021 included changes to the reporting threshold of TPSOs (third-party settlement organizations). Under this new rule all TPSOs such as PayPal, Venmo, etc. are required to issue a 1099-K to any users who received at least $600 of business payments on these platforms. This rule change was going to affect all business payments received after December 31, 2021. However, after some consideration brought on by numerous questions within the accounting community, the IRS has decided to delay the rule changes by 1 year starting with business payments received after December 31, 2022.
This rule change delay offers tax payers who received at least $600 via a TPSO a reprieve from reporting transactions on their 2022 returns. The delay also gives taxpayers the luxury of creating good habits now for reporting TSPO transactions on their 2023 tax returns when the rule change is enforced. Below are some best practices to operate under the new TPSO thresholds.
Ask payers to clearly label all payments made
The use of TPSOs is becoming a more popular form of payment as time goes on. However, many payments received via these organizations are not for goods or services sold as part of a business, but rather to reimburse the payee for expenses incurred on the payors behalf. Examples of these reimbursements include rent, utilities, meals, etc. To make sure that these amounts can be clearly broken out from the income reported on the 1099-K issued by the TPSO, payees should request that their payors clearly label each payment sent.
Maintain payment records for expenses that will be reimbursed via a TPSO
Similar to the best practice above, anyone receiving an expense reimbursement via a TPSO should save all receipts for any expense for which they are receiving a reimbursement. These receipts will create a paper trail to help clear up any confusion around any expense reimbursements that were incorrectly classified as income on the 1099-K issued by the TPSO.
Open a separate checking account to segregate business and personal transactions
As your small business grows, it can be difficult to keep track of business transactions, especially if those transactions are mixed with your own personal transactions. Opening a separate checking account solely to handle your business transactions will enable you to easily separate and accurately report business income and expenses.
Consider investing in bookkeeping software
Increased business success often leads to more bookkeeping and reporting responsibilities. To increase your organization and reduce the time you have to spend on these tasks, consider investing into bookkeeping software such as QuickBooks. There are many time saving features built into QuickBooks. You can link business credit and/or checking accounts (that you created in item 3 above) to your QuickBooks account and then set up rules to automatically classify transactions as they occur. Automations such as this will help you be able to continue to focus more of your time and energy on the parts of your business that truly matter to you.
Even though the IRS delayed the new TPSO reporting thresholds by 1 year, it is still a great time to start building good habits around tracking business transactions. Starting today will greatly ease your reporting burden for tomorrow. If you have any questions on the TPSO reporting delay, or would like help implementing any of the best practices above, please reach out by clicking the “Get Started” button below.