 Internal Revenue Service IRS tax news! IRS announces delay for implementation of $600 reporting threshold for third-party payment platforms form 1099K. Yeah, I think you should delay that one indefinitely IRS. $600? It's a little low, isn't it? I mean, honestly, like with a few more months of inflation $600 won't even be enough to buy you a happy meal. Dang, IRS wants you to report what you had for lunch now. I mean, mind your own business. I mean, I'm eating all nine nuggets of my happy meal. Okay, IRS, I'm eating all nine nuggets. Dang, IRS is worse than my dog. I ball in my nuggets while drooling all over my shoe. I mean, I can understand the IRS has urged to mind my business since the IRS's business is mining my business. But, I mean, can't you wait until I come out of the business mine with some gold or something before you start rummaging through my pockets? I mean, honestly, the IRS is so afraid the business miner may not split some of his work. They want us to go down in the business mine like naked and then conduct a cavity search when we come out of the mine to go to lunch or something. I mean, it's ridiculous. You start your own business so you can get out of the corporate grind and you still end up feeling like you're working for like Uncle Scrooge. Whatever. First a joke. At my last IRS audit, the IRS agent told me it's perfectly normal for us to take all your money. You're not going to lose the house. Everybody has three mortgages nowadays. And that's when I knew they were lying. All right, let's go. I slipped into crab. Who put that crab there? Crab. I didn't see any crab. Don't tell me there were two crabs. They're working pairs. Because perfection can't be normal. My ear canals are very sensitive. They're stainless steel. Took a bullet and corrected it. Pass straight through here. Look at this. I mean, by definition, perfection is far above average, average being normal. We have these to hold down the sound, sir. Oh, good. Thanks. Let's hope they do the trick. Perfectly normal. What are you supposed to be? Some kind of a cosmonaut? No, we're exterminators. Somebody saw a cockroach up on 12. That's got to be some cockroach. Bite your head off, man. I mean, honestly, that's like trying to tell your math teacher to up your grade from a C to an A because missing all those math problems is perfectly normal. Going up. I'll take the next one. And perfection mandates an A. Because obviously you're not a golfer. It makes no sense. What has that got to do with it? Back off, man. I'm a scientist. IR 2022-226 December 23, 2022, Washington. The Internal Revenue Service today announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season. As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a form 1099K to the IRS or the payee for the lower $600 threshold amount and acted as part of the American Rescue Plan Act of 2021. So how are they going to rescue Americans with the American Rescue Plan? They're going to lower the threshold of the 1099K reporting requirements. Why do we do that? Well, you see, we helped out Americans, first of all, by implementing these COVID restrictions, which made a lot of people not able to work anymore, so they're not getting their W-2s at that point in time. And we thought maybe then they'd start to try to still earn money somehow, these people. And so maybe they're going to do gig work or something. But if they do gig work, we can't see what they're earning as well as when they have the W-2 wages. We have to lower the threshold of the 1099K in order to help the people that are doing the gig work. We have to make sure that we see what they're doing so we can help them. So let's just get an idea of how the kind of 1099 works just to kind of run through this. So obviously, when you're thinking about an income tax, the income is actually bad from a tax perspective, right? Because when we report the income, then we're typically going to be paying taxes on the income. IRS, of course, has the incentive in an income tax system to try to look over people's shoulders to see how much they have earned. They have the leverage to look over the shoulders that are paying in a business transaction, every business transaction having a payerside and a recipient. The one that's paying for goods and services is having an expense or deduction. The one that's receiving the money is getting the money and having, in essence, revenue which might be taxable. So the IRS has the capacity and the leverage on the payer of a business transaction because they want the deduction typically. And so they're going to force that side of the transaction to report who they paid the money to. We can see this most clearly with, of course, a W-2 form. So if you have an employee, then the IRS has a lot of control in being able to say, hey, look, this is what we want. We want you to withhold the money from them. We want you to report the W-2s and the W-3s and give us quarterly reports on the 941s and so on and so forth, which, of course, the employer is going to do if they want to have employees. Now, then you could hire someone on a contractor type of basis. So they're not an employee possibly, depending on the circumstances, whether they be a contractor or employee. But you can hire them on a contractor type of basis. And then the IRS doesn't have quite as much leverage. Note that if you just pay a company, the IRS isn't as concerned. If you pay a corporation, the IRS is saying, hey, look, those corporations, we've already got our hooks in them. I'm not worried about them not reporting the income as much. I'm worried about, says the IRS, the little guy, the sole proprietors and whatnot. If you hire those individuals, we feel that they might not report their income, right? So we want you to issue them basically a 1099 form. We won't make you withhold unless certain circumstances are there, but we want you to issue a 1099 form so that we know they reported their income, so that we can kind of look over their shoulder on the income that they report. So that's how it typically will work. However, there's some businesses that still kind of go under the radar in terms of the IRS being able to double check their income. They should still report their income, but the IRS can't see it and double check and look at everything they're doing in the same kind of fashion. And those typically used to be the cashed-based businesses, because if you work at a hair salon, this is why I still say, I still kind of feel like the hair salons, the massage parlors and stuff got hit harder in the COVID thing, because I think the IRS just has some, they don't like them as much because they can't look over their shoulders, the bars, the restaurants, because they're going to get cash from the customers. And the customers are not deducting the payments that they're paying to the owners of these businesses, and therefore the IRS has no leverage on the payer side of things in order to make them issue a 1099 to the recipient, to the massage parlor, to the hair salon, to the nail salon, to the restaurant, to the bar. So those cash transactions have always been kind of a problem for the IRS. Now we've got a new issue for the IRS, and that's the gig work economy, because we've got this new connections platforms, these new platforms like Uber and this kind of stuff where people, you deliver the food and this kind of things. The platform is really more like a silk road. It's connecting two people that have a need and a way to fulfill the need that weren't able to connect before. So you've got trade that can happen, just like if you had a new trade path. That's how I would basically look at it. The actual connecting platform is not really employing anybody. They're just providing the connection of two people that have a good in services that would be able to trade, which is a good thing. But the IRS is going to be there once again saying, well now I've got these small businesses and who's going to report to me who made the money? They're either going to make the platform in the middle and treat the person as an employee, which they're going to try to advertise as being good for the employee, but it'll probably be bad for the whole gig economy because right now they're kind of independent. They have their own business, you know, or they can go to the people that facilitate the trade of the transaction in terms of the money, like the pay pals and the stripes to try to issue the 1099K. So that's where the issue is at, right? And so then they're trying to lower the threshold. It used to be a higher threshold. So now they're trying to lower the threshold. The problem is that if you go into these middle platforms and try to force them to treat people as employees, it's going to mess up the whole business model kind of situation. So it's probably going to lower the productivity, but the IRS will be able to look over everybody's shoulders. If you do it on the payment platform side, again, you're basically kind of restricting the capacity of new businesses to come in and so on. You're entering a lot more bureaucratic kind of stuff into the situation, which usually kind of solidifies the big companies, the big players, because they're the only ones that already have the capacity to deal with these rules. That means that new entries into these markets are going to have a lot more difficult time. That's why the big companies tend to actually like these bureaucratic laws, not because they have to pay for them, they do, but because they provide bars to entry for smaller companies. That's my perspective on it at least. So in any case, as part of this, the IRS released guidance today outlining that calendar year 2022 will be a transition period for implementation of the lower threshold reporting for third-party settlement organizations, TPSOs, that would have generated form 1099Ks for taxpayers. Quote, the IRS and Treasury heard a number of concerns regarding the timeline of the implementation of these changes under the American Rescue Plan, end quote, said Acting IRS Commissioner Doug O'Donald, quote, to help smooth the transaction and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements, end quote. The American Rescue Plan of 2021 changed the reporting threshold for TPSOs. The new threshold for business transactions is $600 per year, changed from the previous threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000. So a significant change here, so a significant change. So the law is not intended to track personal transactions. Okay, do you feel like they're not trying to track your personal, I mean, maybe not. I'm feeling a little, my confidence level is dropping dramatically about, I mean, I feel like they want to know what I had lunch, but maybe I'm just paranoid about it. So the law is not intended to track personal transactions such as sharing the cost of a car ride or a meal, birthday or holiday gifts or paying a family member or another for a household bill. So in other words, you use some of these kind of platforms for payments that are not business related. So you can see where this is going to cause some bureaucratic problem. If you use a platform like PayPal or whatever, a stripe or something that's non-business related, now you're going to have some kind of differentiating factor to see which transactions are business related and which are not business related because the platforms are responsible for sending you a 1099 business related transactions and if they send you a 1099 saying that you got money or that you gave money to someone else and it wasn't a business related transaction, it's going to cause all kind of problems because now the IRS has that and they're going to expect you to report on your taxes in accordance with that 1099 and you're going to have to try to fix the 1099. So this is really a big bureaucratic problem issue. It's going to cost a lot of money to implement these kind of things. I mean, I could see why they'd want to do it. I'm not saying, you know, but they're strangleholding, they're choking down the new business a little hard, I think, and it could restrict innovation and competition, but whatever. Under the law, beginning January 1st, 2023, a TPSO is required to report third party network transactions paid in 2022 with any participating payee that exceeds a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payees an IRS form 1099K payment card and third party payment transactions. There's a link to that there. The transaction period described in notice 2023-10, there's a link to that, delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to facilitate an ordinary transition for TPSO tax compliance as well as individual payee compliance with income tax reporting. A participating payee in the case of a third party network transaction is any person who accepts payment from a third party settlement organization for a business transaction. The change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting like the form 1099K, obviously. So obviously they want to look over people's shoulder and I mean, I could see why that would be the case, but the more they kind of tight, it's like being micromanaged, right? The more rules they put in place, the more we're spending on the rules themselves and they of course will restrict productivity and make the desire to run your own business less desirable if you're still being micromanaged and whatnot. But in any case, however, the IRS noted it must be managed carefully to help ensure the 1099Ks are only issued to taxpayers who should receive them. So that's going to be a clear problem because again, if you're using these third party platforms to pay something that are non-business related and you get a 1099 for it, then the IRS is going to expect you to report that. So you can see kind of what's happening here is like the reporting of your income for low to moderate income individuals is almost like an act that doesn't need to be done anymore because the IRS already has your information, right? So it's becoming if they keep on going this direction, the act of self-reporting will be similar to like someone voting in a tyrannical kind of democracy that's not really a democracy, right? They're just pretending they have a vote but they don't. The same could be done with the tax code, right? You're self-reporting but it really isn't self-reporting because they have all the information to prepare the taxes already because they're completely micromanaging and watching all the transactions. To some degree they could fill out the tax return themselves at that point. So again, is that good or bad? I know people cheat when you're not micromanaging but at the same time micromanaging causes its own problems so there's got to be some balance there you would think. So in addition, it's important that taxpayers understand what to do as a result of this reporting and tax preparers and software providers have the information they need to assist taxpayers. Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do. The IRS also noted that the existing 1099K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect. So there's a link to all this information if you want to look at it in more detail. There'll be a link to this in the description.