Business owners and other taxpayers should be aware that the nuances of tax policy have changed amidst the transition to the new year. These alterations will significantly affect businesses of all types and sizes, regardless of their unique industry or niche. However, if you are like most business owners, you are busy to the point that you cannot constantly keep your finger on the pulse of tax policies and codes. Here’s a quick look at how the IRS 2022 tax policy will shape the upcoming tax season.
Embrace the Tax Changes for 2022
File your taxes electronically instead of with paper and pen, and you will have done your part to expedite processing. Those who received an advance Child Tax Credit or Economic Impact Payment last year are urged to report the proper amount on this year’s tax return to mitigate potential delays. The same advice is true for those who received Economic Impact Payments, also known as American Rescue Plan stimulus compensation, in the year gone by. Though the IRS should mail a letter to recipients of such payments, it is also possible to check the amounts received through the IRS.gov website.
Ideally, your taxes will be ready for transmission to the IRS at least a whole week ahead of the April 18 deadline. The deadline to file taxes was moved back from April 15 due to the Emancipation Day celebration in the beltway. It is also worth noting taxpayers who reside in Massachusetts or Maine have until April 19 to file taxes due to those states’ Patriots’ Day celebrations. If you are ill, unprepared or simply lack the money necessary to file or pay your taxes by the deadline, you can request an extension to delay filing until October 17, 2022.
The Issue of Delayed Processing
The IRS has admitted it has been slow in processing individual tax returns from 2021 pertaining to earnings from 2020. Though we are in the early months of 2022, the IRS has not fully processed individual tax returns filed last year. However, even if your tax return from 2021 has not been processed, you should still file your 2021 tax return. The IRS has stated there is no need to wait for the prior return to be completely processed to file a tax return in 2022.
Tax Information Every Business Owner Should Know
The employee retention credit was passed into law as a positive reinforcement meant to sway business owners to keep workers on the payroll. However, the credit ended a couple of months early in the year gone by. Congress ended the credit to help finance the infrastructure rebuild and fortification that will occur in the years ahead.
The CARES Act that was enacted to mitigate the economic effects of COVID-19 ramped up the federal budget deficit all the more, meaning taxes will inevitably be raised to offset the shortfall. However, savvy business owners will seize the opportunity to mitigate those eventual tax hikes by claiming credits against taxes owed to Uncle Sam. For example, there is a research and development credit available for business owners who spend on investments. This tax credit is available as of 2022, yet it might be eliminated in the years ahead, so be sure to take full advantage of it while it is still available.
About That $600…
Business owners and independent contractors who use PayPal, Zelle, Cash App, Venmo, or any other online payment processing service to receive compensation for work should be aware that a new law is on the books. The new tax law states that individuals who receive $600 or more payments through PayPal, Zelle, or a similar service must report that income to the IRS. Though all income derived from business operations is to be reported to the IRS through the year-end tax filing, it is worth noting that business owners who use online payment services will be under the microscope now that the new law detailed above is on the books.
The new tax rule buried within the American Rescue Plan Act passed into law this past year will affect millions of business owners throughout the United States. The law even pertains to third-party settlement providers that accept credit card payments, setting the stage for the money to be transmitted to a bank account. So don’t assume the IRS or payment processor will overlook such transactions as occurred in prior years. Be hyper-aware that business owners who use such online payment processing tools will face additional scrutiny in the year ahead, report all income paid to your business on the web in total, and you will be able to file your taxes in confidence. Even those who sell diminutive items on eBay, Craigslist, Etsy, or Amazon should report their online payments to the IRS.
Do not assume PayPal, Venmo, or another payment processor will notify you of the new reporting obligation. Even if those services do not request your Social Security number or business tax identification number, it is in your interest to report every penny of revenue sent to your business through web-based payment processing services. However, it is worth noting some overlap will occur. For example, an individual who works as an independent contractor and works for a business that provides $600 or more through a payment service will be required to report the amount on the 1099-MISC. As long as there aren’t any other amounts stemming from the online payment processor in question, the alternative 1099-K form can be disregarded.
When in Doubt, Ask for Assistance
In summary, the new tax policy changes implemented by the IRS for the 2022 tax season are fairly complex. Instead of burying your head in the sand and remaining ignorant to this year’s tax changes, be proactive by soaking up all the details before it’s too late. The bottom line is that it is in every business owner’s interest to understand the tax code and how any changes will affect your company.
Reach out to Quantive today to find out how we can help your business minimize its tax burden and fulfill its true potential. You can reach our team by phone at 888-827-1624. You can also reach us online by completing our contact form.