When it comes to cash, everyone in the snow removal industry faces a two-way street. On the one hand, it may be necessary to report even routine cash payments received from customers. On the other hand, not only will many of those with whom you conduct business be required to report the funds paid your operation, payments funneled through third-party apps will be joining transactions conducted via credit cards.
That’s right, payments received via third parties have now been added the reporting requirements for cash payments more than $10,000. This latest rule was included in the American Rescue Plan, the $1.9 trillion stimulus package and changed tax reporting requirements for third-party payment networks.
Today, every snow removal and ice management business, as well as persons engaged in a trade or business, making “reportable” transactions during the year must report those transactions to the IRS as well as furnishing a copy of the information return to recipients. But what transactions are reportable?
THE BASIC 1099 SERIES
The IRS’s Form 1099s are a collection of tax forms that document different types of payments made by both individuals and businesses. Snow and ice management operations are required to issue a 1099 form to a taxpayer (other than a corporation) that has received at least $600 or more in non-employment income during the tax year. Among the many types of 1099 Forms used for the many types of non-employment income these common ones:
Form 1099-MISC, Miscellaneous Income, is for each recipient paid at least %600 during the year for rents, prizes and awards, etc. Form 1099 is also used to report direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
Form 1099-NEC, Nonemployee Compensation, was reintroduced by the IRS to report self-employment income instead of on Form 1099-MISC as in the past. All self-employed contractors should be receiving this form sent out by every business that uses independent contractor or service provider. Both the recipient and the IRS must receive copies of this form.
Naturally, since the IRS considers all Form 1099 payments as taxable income, recipients are required to report payments shown on Form 1099.
Obviously, receiving $10,000 from a customer may not be an everyday occurrence and even cumulative payments more than $10,000 from one customer rare in many businesses’, but the government wants to know about them – sometimes. The law requires every business to report cash payments of more than $10,000 by filing Form 8300, Report of Cash Payments Over $10,000 received in a Trade or Business. That means transactions such as:
- Sales of goods or services
- Pre-existing debt payments
- Reimbursement of expenses
- Sales of real or intangible property
- Rental of real or other property
- Making or repaying a loan will require filing a Form 8300.
Cash, according to the IRS, includes “the coins and currency of the United States and a foreign country.” Cash does not include personal checks drawn on the account of the customer or a cashier’s check, bank draft, traveler’s check or money order with a face value of less than $10,000.
REPORTING SUSPECT CASH PAYMENTS
On occasion, there may be situations where the snow removal contractor is suspicious about a transaction or transactions. According to the IRS, a transaction is suspicious if:
- It appears that a person is trying to prevent the business from filing a Form 8300
- It appears that a person is trying to cause a business to file a false or incomplete Form 8300, or There is a sign of possible illegal activity.
In addition to reporting suspicious transactions by simply checking the appropriate box on Form 8300, the business can voluntarily file a Form 8300 in those situations where the transaction is $10,000 or less and suspicious.
The information contained on the form will, reportedly, assist law enforcement in its anti-money laundering efforts. When a snow and ice removal business complies with the reporting law, they are providing authorities with an audit trail to investigate drug dealing, terrorist financing and other criminal activities – and possible tax evasion.
Under the earlier law, the IRS required payment card and third-party networks to issue a Form 1099-K, Payment Card and Third-Party Network Transactions, to report certain business transactions that involved:
- Gross payments that exceeded $20,000, and
- More than 200 transactions during the year.
The new law requires these transactions be reported to the IRS and users to receive Form 1099-K for payments of goods and services over $600 without any needed minimum transaction, which means more contractors will receive the forms. In other words, anyone receiving $600 or more in payments for goods and services through a third-party payment network, such as Vemno or CashApp, will have these payments now being reported to the IRS.
That’s right, beginning Jan. 1, 2022, third-party payment network providers will be required to send users a Form 1099-K, for transactions made during the 2022 tax year by mail or electronically. The new reporting requirements will impact 2022 tax returns filed in 2023.
Form 1099-K, Payment Card and Third-Party Network Transactions, is yet another information return the IRS requires for reporting payment transactions in an effort “to improve voluntary tax compliance.”
For the record, while these new rules apply to most third-party payment networks, ZRLLE is not, according to them, subject to the law. The law says only third-party payment companies that transfer funds from a buyer to aa seller are required send Form 1099K to users. Apparently, ZELLE doesn’t settle funds but rather provides messaging between a financial institution and people making the payments.
With more businesses, accept using cryptocurrencies such as Bitcoin, it's no surprise they continue to draw lawmakers' attention. The IRS wants to track these transactions. Legislation being proposed would make digital assets such as cryptocurrencies subject to the constructive sale rules.
Under the constructive sale rule, an appreciated position is treated as constructively sold if the taxpayer enters an offsetting financial position of substantially identical property. If enacted, this would mean a snow and ice management contractor would need to track their cryptocurrency transactions as well as their basis or book value. This is especially important if the contractor uses multiple cryptocurrency exchanges or wallets.
A little closer to home, new reporting requirements for cryptocurrencies were already in place after recent legislation. Brokers are required to report cryptocurrency transactions on Form 1099-B and must include a customer’s basis beginning after 2023. In addition, digital assets are now treated as “cash” for purposes of the rules requiring information reporting by any business receiving cash transfers of more than $10,000.
ON THE RECEIVING END
Reporting income has always been a requirement when filing taxes. The idea is reporting requirements, both existing and proposed, reduce the “tax gap” – the difference between the taxes owed the government and the amount it actually receives. However, with the new reporting requirements comes concern that expanding the IRS’s access to this information only raises privacy concerns.
It is becoming difficult to forget about income with payees and payor middlemen facing civil penalties should they fail in their expanded role as “tattletale.” The good news is while reporting all income received to the IRS has always been required, deducting the expenses incurred earning that income remains an option. The downward fluctuations of some cryptocurrencies may also mitigate the effect of those newly proposed rules on cryptocurrencies.Mark E. Battersby is Snow Magazine’s financial writer. He resides in Ardmore, Pa
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