New Small Business Tax Rule for 2022
The American Rescue Plan Act of 2021 is a $1.9 trillion economic stimulus bill designed to facilitate US recovery from the economic and health effects of the pandemic. After a change within the Act, starting in 2022, small business owners or freelancers that get paid from a digital payment service of a third-party settlement provider that accepts credit cards of their behalf, will be required to report the amount to the IRS. However, this will only apply if the amount received is more than $600 in total during the course of the year.
Due to the tax change, the IRS will be able to find out what a business has earned regardless of whether it is reported or not. Businesses selling on the sites like Etsy, Amazon or eBay, can expect to receive a 1099-K form after January 31, 2023 from the payment services they are using for purchases made in 2022. Filers of a 1099-K form must report the gross amount of reportable transactions for each month and for the entire year in separate boxes on the form. However, transactions for personal gifts, charitable contributions and reimbursements are specifically excluded from reporting.
In a press statement about the new tax reporting changes, PayPal advises that businesses can also expect to be asked additional questions from their payment service provider. Businesses may notice that in the coming months they will be asked for their tax information, like a social security number or tax ID, if it hasn’t already been provided. This information will be needed in order to continue using accepting payments for the sale of goods and services and to ensure there aren’t any issues when these changes take effect in 2022.
Congress Exploring More COVID Relief for Small Business Owners
A group of lawmakers has started exploring another round of coronavirus relief funding for small businesses as a surge of the highly contagious omicron variant threatens to unleash more economic havoc.
Senators Ben Cardin and Roger Wicker are crafting a package based on a bill the pair previously introduced in August that would replenish the Restaurant Revitalization Fund, a program that gave food and beverage providers grants equal to their pandemic-related revenue loss, with a maximum of $10 million per business and $5 million per location.
The Restaurant Revitalization Fund paid out approximately $29 billion to eligible applicants. Businesses could use the grants to cover expenses, rent and supply costs. The fund ran out of money in less than two months after providing grants to more than 100,000 businesses.
The proposed legislation, which failed to pass, would have allocated an additional $48 billion to the fund. Wicker and Cardin put together a $68 billion proposal in mid-December that included a mix of new spending and reallocation of unused cash authorized under previous packages.
The White House has maintained that it has the resources needed to respond to any disruptions caused by the omicron spread. When asked about the possibility of a relief package that targets restaurants and other small businesses, Press Secretary Jen Psaki pointed to the $1.9 trillion package that Democrats passed nearly a year ago stating, “…we did a major relief package that included helping restaurants just last year.”
Only about one-third of restaurants that applied for relief through the fund received a grant, and the Independent Restaurant Coalition estimates that nearly 80% of restaurants could close this winter without additional aid.
The IRS Set Deadline for Amended Research & Design Tax Returns
The IRS recently began requiring companies filing retroactively for Research & Design tax credits to include more detailed supporting documentation and substantiation. According to the IRS’s Memorandum, this documentation includes: all research activities performed; all individuals who performed each research activity; all information each individual sought to discover; total qualified employee wage expenses; total qualified supply expenses; and total qualified contract research expenses for the claim year.
Additionally, if new regulations in the Build Back Better Act aren’t passed, amortization rules relating to the R&D tax credit’s accounting method and utilization will also take effect. As a result, these changes may also make claiming the credit more difficult and reduce the tax credit’s immediate benefit.
The formal rules were announced on October 15, 2021 with an effective date of January 10, 2022. This means that if a business is filing for R&D tax credits for a prior year and the recordkeeping hasn’t met the newly introduced criteria, they will not be accepted. Any current and new research activities must adhere to these new reporting standards in order to claim R&D tax credits.