In this week's episode, Travis discusses the 1099 K and NEW tax info that you need to know about!
In this week's episode, Travis discusses the 1099 K and NEW tax info that you need to know about!
Jake:
Hello, and welcome to the “Build with BBB Podcast.” I'm Jake Kelly, the Video Production and Communications Coordinator here at Better Business Bureau Serving Central Oklahoma. And we are here to continue our Tax Series with Travis Watkins. Travis, first of all, how are you doing?
Travis:
I'm doing great. Thanks for having me.
Jake:
We've talked about some of the nuts and bolts, some of the more sterile things on how to set up your taxes and information on that. We've also talked about how those things can drastically affect the lives of the humans, the people that are within those businesses and how taxes and tax issues can affect them. So, continuing with that line, what are some new things in 2022 that those people need to look out for?
Travis:
Yeah, you bet. Well even before we get into some of those things, I would say that the 2021 tax year had a bunch of changes that a lot of people didn't know about. I'd say 2020 was the theme there from the federal government like some bailouts, especially for small business. There's the Paycheck Protection Program that has all types of stimulus things in it. Then in 2021 it's, it's like the chickens came home to roost. It was like if you didn't spend things right, if you didn't use those funds correctly, then the bitter shock was you may have to end up paying some of those things back.
Jake:
Yeah. And all of this amid an already stressful time we're living in.
Travis:
Exactly. So that's the backdrop here. I guess also in 2021, U.S. Legislatures were trying to push through some legislation to make banks report, really on everybody for transactions above, I think it was $600 there. And that came with lots of backlash. You may have gotten an email from your banker saying, “call your congressman.” All those things have kind of died down due to probably lobbying efforts through the banks. What we got though, was this twisted, ugly subset of that which is called the 1099 K. And that's coming up here in 2022. It's kind of a quiet thing until it's the end of the year when applications like Venmo and PayPal and those types of cash transfer companies are going to be required to report, like we talked about with the banking industry report, any transactions above $600. So, as we've talked about previously, the pandemic and past has created this kind of new culture, I guess, for new business. People were doing side hustles and they were making side hustles, and they were moving, transitioning around the country and they were going from one gig to another. There was just a lot of disruption there and I picked this because I think that something like the 1099 K is going to snare some individuals, and new business owners. It's a quiet deal until it's not at the end of the year.
Jake:
Yeah. And especially, like you said, applications like Venmo Cash App and PayPal, that's how so many transactions are happening now. And I think what people liked about those is because it was a little bit more discreet, and it was easier.
Travis:
Not regulated, you know, “DEREG” is, is a big deal, big word, you know? It’s popular in common parlance now. And that was what we loved about those apps and now things will start becoming more regulated.
Jake:
I think that could be a possible shock to somebody who is a gig worker. There's so many of those people right now that are still doing either side hustles or gig work that get paid through those applications and in various other ways, but it's not people who are keeping up with tax law. And so that can be such a big shock to people, especially if you're an owner of a small shop, like an Etsy shop or something like that and you do most of your transactions through some of those digital money transfer systems. If they're not prepared, they're going to have issues with the IRS.
Travis:
Yeah. This is the problem with 1099’s: Let’s say you’ve earned $100,000 in sales. If you've got your company set up correctly and you're filing on the right returns, taking out your business expenses, you've got a bookkeeper or you're doing the bookkeeping yourself and you're keeping track of those business expenses, it's not a hundred thousand dollars net to you. Let's say it's $50,000 net to you. And that's the taxable portion, whether you're a sole proprietor or if it flows through to you individually, not that a hundred thousand dollar thing. And some folks that do and lots and lots and lots of transactions, especially over this $600 threshold, which won't be very hard if you've got a successful business, it looks inflated. It looks like you're not filing correctly to IRS computers. And so, they may be completely above board on their filing, it’s just this disparity on paper. If you don't file, and this is a good thing to bring up here too, if you don't properly file, the IRS at some point will file for you. A lot of people are shocked at that, and it's not in a good way either. It's not a “free tax return” in the way that you want it to be. It's one you wouldn't file on your worst enemy.
Jake:
It is not a favor.
Travis:
Right. And this is for taxpayers that don't pay that don't file their returns routinely. But when it gets to that point, the IRS will take those 1099’s and 1099Ks in this circumstance and they'll combine all those things, and they'll say you made a million dollars because that's what all these third parties have filed on you. All your transactions show that you made a million dollars and what they do in that circumstance, they give you no business expenses. They put you in the highest tax bracket. They treat you as a single taxpayer. And like I said, you wouldn't file this on your worst enemy. They say, “This is the number and pay this.”And they add penalties and interest to it. That's the ugly side of the parade of horribles for 1099s.
Jake:
This hasn't gone into effect yet, is that correct?
Travis:
It's in effect. It's just that they don't have to file these until the start of the next year.
Jake:
Since this is starting to be rolled out, what are some things that people can look for to maybe mitigate some of the effects of this?
Travis:
I wish I had more on that. The main theme is obviously file and file correctly and have your business expenses in there. If you do get tagged for one of these paper audits, then they're going to make you shore up that difference there between what you're showing as your taxable income versus what all these other sources are showing as your taxable income. So file and file correctly. Yeah. That's A and B.
Jake:
And when you talk about filing correctly, that can be a foreign thing to some people, you know? And how would they get help with that? I think what you've said in a previous episode is like helping or get a tax professional as part of that pre-planning phase. I always heard that the first thing you need to do from various people is that whenever you're starting a business, get yourself a tax professional.
Travis:
Yeah, get you a tax guy or gal. And as a side note here, we see this kind of thing from the other way around. We see our clients come in mostly through that doorway of a tax problem that's already going on. It has given us a good opportunity because taxes come up every year unless you're not in business or you die. So there's really no other options there. And so we have seen enough of those things where we have started to implement over the years, a full scale tax preparation service and full scale bookkeeping service. We can help these business owners out in these circumstances to stay compliant. We can't work out anything if you are in a problem with the IRS and we can't work anything out until we cross that threshold of filing. Yeah. And you must be current and must be paying quarterly. And they're not going to let you get a deal on any of the old stuff until you are showing them, “Hey, I'm back in the system, I'm doing the right thing now and moving forward, staying out of trouble.”
Jake:
Wow. So we talked about the 1099 K. Are any other things that people need to kind of be on the lookout for? Or where do these business owners or gig workers go if they were curious and wanted to keep up with what's going on? What's the easiest way that they can do that?
Travis:
Well, like I said, this is going to hit a lot of people. There's not just a whole lot out there at this point. And I'm feeling good that we're getting this out there ahead of this thing. You know, people are still recovering from the 2021 tax year. But you can go to our website, www.TravisWatkins.com. You can give us a call also at (844) 958-1178 and talk with us about setting up your company and doing these ongoing bookkeeping services. Like I said in the previous episode, we always start with the end in mind and we know these things that are coming down. There here's always going to be something like this that's coming up for taxpayers for business tax payers. So beat it to the punch before it happens. Get your tax professional in line consulting you on the best type of business form, first of all and to come up with some strategies, so that you're ready. And for these 1099 Ks, especially being able to show them quickly that no, that's not my real income there. This is going to apply to even people that are exchanging money for dinner last night or that concert next week. And it all is going to end up getting swept into a potential problem that the IRS, quite frankly, isn't prepared to deal with, since they are doing way too much right now with way too little and staff and funding to keep up.
Jake:
We can all thank you for getting this information out and hopefully this is able to help anybody who's listening to this. I'm glad that we're able to maybe get out in front of this a little bit, so that when these things inevitably happen, they can be prepared for it. And they don't have to risk the IRS coming and auditing them or getting them in trouble. I think it's really important for business owners to stay informed of all this. Thank you for coming on.
Travis:
Thank you for doing that for us as accredited businesses and business owners, because it shows that the BBB really cares about the sustainability of your business and keeping you informed and making sure that you have a successful, accredited business. It's the gold standard.
Jake:
You said it all just there, thank you so much for being with us and sharing all this information. There's obviously so much more that we could talk about tax wise and I'm sure that there's so many anecdotes and stories that you could share. Unfortunately, we just don't have the time and we want to keep these brief so you can listen to these quickly. But if you want to find more information on Travis Watkins, has given you his phone number and his website and all the resources so go check him out. If you have questions, give him a call, or if you need to, call us, we'll get you in contact with Travis Watkins. His business is accredited with the BBB, so you know that he is trustworthy and represents integrity. So thank you and everybody for listening and hope we have a wonderful day.