Are small businesses ready for taxes in the coming year?
The new 1.9 trillion-dollar Covid relief bill passed recently by congress includes Change to the IRS tax code that requires businesses to file 1099-K forms for anyone making more than $600 gross pay within a year.
This includes 3rd party sellers on Amazon and Etsy as well as Walmart, etc. This tax law has been around for a few years but now the IRS will be clamping down on it.
I’ve always been doing that for my freelancer workers throughout the years. Once they hit the $600/yr. threshold my company has to send out 1099 forms to inform the IRS of what I paid them.
And then I report it to my accountant for the company taxes.
But now going forward this applies to gig workers that work for places like Etsy, Uber, etc.
What Else Changed for Small Businesses and Gig Workers?
This change means not only are workers required to claim this income on their taxes (as currently required), but any business that pays them, such as Uber (NYSE: UBER), Lyft (NASDAQ: LYFT), DoorDash (NYSE: DASH) and even marketplaces like Etsy (NASDAQ: ETSY), will be required to submit a 1099-K to the IRS on the individual’s behalf.
Under current law, payment organizations must only file a 1099-K form on behalf of a seller when total sales exceed $20,000 and/or total transactions exceed 200 in a tax year. This starts January 1, 2022 (for monies made in 2021.)
What Happens to Businesses Like Etsy?
Will companies like Etsy lose business with these new regulations in place? Will the gig workers stay on or find work elsewhere? The gig economy as it was called exploded when Covid-19 sent many people to work from home. Many other people like wait staff who lost their jobs found gig jobs working from home.
These businesses will now have to keep track of payments to workers and have forms sent to them for the $600 threshold. This is something that they have not had to do in the past.
Now, will these same people find work back at restaurants and other service industries? Will Etsy and Amazon lose much business if these gig workers stop working for them?
It is estimated it could cost these businesses collectively a billion dollars annually!
A last-minute insert by Democrats looking to offset the cost of their coronavirus aid package would send tax collectors into the gig economy, eventually costing Uber and DoorDash drivers, Airbnb hosts and others about $1 billion annually. https://t.co/MpcTeR7Say— Roll Call (@rollcall) March 5, 2021
Will What Most Gig Workers Do?
With many states relaxing covid-19 restrictions many may find jobs back in retail or hospitality. Others, may continue to do gig work but maybe only until they reach the $600 threshold.
It will be interesting to see how they react in the coming weeks with this new law.
Are Small Businesses Ready For Taxes and Preparation?
Say, for example, you sell something on eBay or Amazon for more than $600? You will have to report that as well. Or if you are on Airbnb the same would apply.
Now the IRS has everyone’s personal information. A tax expert warned that IRS penalties ‘can destroy a person’s life and said many gig economy workers won’t be able to afford this sudden tax crackdown.
Don’t Miss Small Business Tax Deadlines
If you miss deadlines for filing taxes it could cost you $600 in fines. So plan ahead and be aware of the dates and deadlines for business taxes. Hint: It’s not just April 15th!
The best you can do is hire a tax accountant and of course, that’s a write-off too as a business expense.
Is your small business affected by the new laws and the gig workers? I’d love to know more in the comments below.