Janiece Montes said she and other small business owners are already struggling as the inflation hit a 40-year-high and a new tax law could make it even harder for them.
The new law, that took effect this month, affects small business owners who rely on payment apps like Venmo, PayPal and Cash App.
Beginning this year, the third-party processors will be required to report a user’s business transactions to the IRS if they exceed $600 for the year. It will apply to earnings in 2022. Previously, the reporting requirement only kicked in if someone received more than $20,000 from at least 200 business transactions in a year.
Montes, owner of Janiece’s Purse Collection and co-owner of Social Le’Air Boutique and Events in Exeter, said she will be forced to pay more taxes as a result of the new law.
She collects payments from her customers via apps. She said most of her money comes through apps to pay for the rentals and venues she uses for business events.
“It’s kind of a smack in the face from the government to us small businesses. We’re trying to survive especially during the pandemic,” Montes said. “It couldn’t have come at a worse time.”
Chae Rucker, owner of Compassionate Care Phlebotomy & Medical LLC at 413 S. Washington Ave. in Scranton and a married mother of five, agrees.
She relies on apps to accept payments for tuition at classes she offers. She offers virtual or in-person phlebotomy training as well as testing for COVID-19, pregnancy, HIV and sexually transmitted diseases.
“I’m trying to instruct so I can give education and knowledge to the youth and to my community and now, I feel like I’m being charged for it,” Rucker said.
Rucker formerly lived in Philadelphia where she owned a hookah bar and worked as a bartender. When the pandemic hit in 2020, events were canceled and she was forced to shut down her bar. That motivated her to move to Scranton and start her own business. Her long-time goal is to open her own urgent care walk-in clinic.
She said she wishes government officials would do more to help small business owners and not penalize them.
“I feel like I’m being penalized,” Rucker said. “As small business owners, we have to pay the government more money now.”
Montes, a mother of two who lives in Scranton and who organizes events for Black and Brown business owners, opened Social Le’Air Boutque and Events in Exeter in October last year with Scranton resident Maryliza Bryant. The storefront features purses from Montes’ business Janiece’s Purse Collection and items from other small businesses.
“I’m only into my first year and a half of my business and with this now, who knows if I’m even going to make it another year and a half,” she said.
Montes and Rucker said most small business owners purchase their items from large retailers and they already pay taxes.
“There is no reason they should be having to report income from selling products they hand make and previously paid taxes already. With inflation at such a high rate right now, most people are only selling their products on the side to make ends meet and still living paycheck to paycheck,” Montes said. “This will mean more money for the government and less money for the households.”
Financial adviser Sean McAndrew, a partner with I&M Wealth Advisors in Dunmore, said small business owners, freelancers and gig-economy workers will need to start preparing for the possible increase in their reported taxable income this year.
While those affected are unhappy with the new rule, McAndrew said it was “clear at some point the IRS would need to update their mandates to compensate for the changing global economy and level the playing field with standard W-2 employees.”
McAndrew said the IRS has always mandated that individuals disclose all earnings and income, but the burden was previously on the individuals themselves to account for and report these figures.
Now, through a provision in the American Rescue Plan Act of 2021, he said third-party payment companies like PayPal and Venmo are required to report annual transactions of more than $600 directly to the IRS down from the previous threshold of a gross income exceeding $20,000.
This means both the IRS and payment recipients will receive a form 1099-NEC which they will need to account for when completing their tax return, he said.
“Hopefully these changes should make tax-time less of a headache for these types of workers and decrease the odds of future audits and discrepancies,” McAndrew said.
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February 14, 2022 at 09:00AM
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Small business owners who rely on payment apps face new tax law - Standard Speaker
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