Does your business receive large amounts of cash or cash equivalents? If so, you’re generally required to report these transactions to the IRS — and not just on your tax return. Beginning January 1, 2024, this reporting will have to be done electronically. Here are some answers to questions about the requirements and what’s changing. What Is Required? Each person who, in the course of operating a trade or business, receives more than $10,000 in cash in one transaction (or two or more related transactions), must file Form 8300. Who is a “person”? It can be an individual, company, corporation, partnership, association, trust or estate. What are considered “related transactions”? Any transactions conducted in a 24-hour period. Transactions can also be considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions. In order to complete a Form 8300, you’ll need personal information about the person making the cash payment, including a Social Security or taxpayer identification number. How Does the IRS Define “Cash” and “Cash Equivalents?” For Form 8300 reporting purposes, cash includes U.S. currency and coins, as well as foreign money. It also includes cash equivalents such as cashier’s checks (sometimes called bank checks), bank drafts, traveler’s checks and money orders. Money orders and cashier’s checks under $10,000, when used in combination with other forms of cash for a single transaction that exceeds $10,000, are defined as cash for Form 8300 reporting purposes. Note: Under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier’s checks, treasurer’s checks and/or bank checks, bank drafts, traveler’s checks and money orders with a face value of more than $10,000 by filing currency transaction reports. What Is the Reason for Reporting? Although many cash transactions are legitimate, the IRS explains that the information reported on Form 8300 “can help stop those who evade taxes, profit from the drug trade, engage in terrorist financing and conduct other criminal activities. The government can often trace money from these illegal activities through the payments reported on Form 8300 and other cash reporting forms.” Failing to comply with the law can result in fines and even jail time. In one case, a Niagara Falls, NY, business owner was convicted of willful failure to file Form 8300 after receiving cash transactions of more than $10,000. In a U.S. District Court, he pled guilty and was recently sentenced to five months home detention, fined $10,000 and he agreed to pay restitution to the IRS. He had received cash rent payments in connection with a building in which he had an ownership interest. Forms Must Be Sent Electronically Next Year Businesses required to file reports of large cash transactions on Forms 8300 should know that in addition to filing on paper, e-filing is an option. The form is due 15 days after a transaction and there’s no charge for the e-file option. Businesses that file electronically get an automatic confirmation of receipt when they file. Effective January 1, 2024, you may have to e-file Forms 8300 if you’re required to e-file other information returns, such as 1099 and W-2 forms. You must e-file if you’re required to file at least 10 information returns other than Form 8300 during a calendar year. The IRS also reminds businesses that they can “batch file” their reports, which is especially helpful to those required to file many forms. Record Retention You should keep a copy of each Form 8300 for five years from the date you file it, according to the IRS. “Confirmation receipts don’t meet the recordkeeping requirement,” the tax agency added. Contact your tax advisor with any questions or for assistance.
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1099-K Reporting Requirements Change
Businesses and individuals concerned about the confusing 1099-K reporting requirements can breathe a sigh of relief: On November 21, 2023, the IRS announced that the deadline for the new $600 reporting threshold won’t go into effect for the 2023 tax year — and it’s expected to increase the threshold less than expected for 2024. Here’s what third-party settlement organizations and taxpayers need to know.
Changes to the Reporting Threshold Third-party settlement organizations must report payments in a trade or business to the IRS and recipients. This is done on Form 1099-K, “Payment Card and Third-Party Network Transactions.” Examples of third-party settlement organizations include Venmo and Cash App, as well as gig economy facilitators, such as Uber, Lyft, Etsy and TaskRabbit. The American Rescue Plan Act of 2021 lowered the minimum threshold to file Form 1099-K for a taxpayer from $20,000 of reportable payments made to the taxpayer and more than 200 transactions to $600 (the same threshold applicable to other Forms 1099) starting in 2022. In late 2022, the IRS temporarily delayed the reduced threshold for the 2022 tax year. Following additional feedback from taxpayers, tax professionals and payment processors, it’s been delayed again for 2023, and the IRS is planning for a threshold of $5,000 for 2024. This will give taxpayers more time to prepare their systems and procedures for when the $600 1099-K threshold is scheduled to go into effect in 2025. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area,” said IRS Commissioner Danny Werfel. Looking Ahead The lower threshold for filing 1099-K forms will mean many participants in the gig economy will receive these forms for the first time. The IRS estimates that the reduced threshold, if it had gone into effect in 2023, would have resulted in the distribution of 44 million 1099-Ks sent to many taxpayers who wouldn’t expect one and might not have a tax obligation. This could have caused significant confusion among individuals and businesses. Important: The 1099-K reporting requirements don’t apply to personal transactions, such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another person for a household bill. These payments aren’t taxable and don’t require 1099-Ks. However, the sale of goods and services, including selling used personal items — such as clothing, furniture and other household items — could generate a Form 1099-K for many people, even if the seller doesn’t have a tax liability from those sales. Members of Congress have introduced bills to raise the threshold back to $20,000 and 200 transactions, but there’s no guarantee that they’ll pass. In addition, taxpayers should generally be reporting income from their side employment engagements, whether it’s reported to the IRS or not. For example, freelancers who make money selling products on Etsy or driving for Uber should have been paying taxes all along. However, Congress and the IRS have said this responsibility is often ignored. In some cases, taxpayers may not even be aware that income from these sources is taxable. In the meantime, businesses should prepare in 2024 to minimize the tax consequences of the gross amount of Form 1099-K reportable payments. And taxpayers should review gig and other reportable activities to ensure payments are recorded accurately. Payments received in a trade or business should be reported in full so that workers can withhold and pay taxes accordingly. If you receive income from certain activities, you may want to increase your tax withholding or, if necessary, make estimated tax payments or larger payments to avoid penalties. In addition, taxpayers who haven’t been reporting all their income from gig work may not have been documenting expenses that result in deductions. It’s important to start doing so now to minimize the taxable income recognized due to the gross receipts reported on Form 1099-K. The IRS is likely to take the position that all of a taxpayer’s gross receipts reported on Form 1099-K are income and won’t allow deductions unless the taxpayer substantiates them. Deductions will vary based on the nature of the taxpayer’s work. For More Information The expanded 1099-K reporting requirement is complex and will affect many businesses and individuals. “The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” said Commissioner Werfel. Contact your tax advisor for questions about your Form 1099-K responsibilities.
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