Geltrude & Company founder Dan Geltrude explains what new tax provisions small business owners or online marketers should be aware of.

Video Transcript


DAVE BRIGGS: Small business owners who use fintech platforms like PayPal, Venmo, and Cash App to complete transactions must keep in mind new reporting rules from the IRS. As a result of the American Rescue Plan Act, anyone who earns more than $600 in business related transactions will have their income reported to the IRS. Now, this is a big change for the previous policy, where Americans reported payments of more than $20,000 to the IRS.

To help us explain what this means for business owners, Dan Geltrude, founder of Gertrude & Company, joins us today. Nice to see you Dan. What do we need to know, and why was this change made?

DAN GELTRUDE: Well, let’s start with this. The reason it’s getting attention now is because it’s effective in 2022. So at the end of the year, everyone is saying, wait a minute, it’s here? It is part of the American Rescue Plan. And basically what was said, as you said before, the current transaction, the gross transaction over $600, will be reported to the IRS on Form 1099-K.

And the reason it’s important is because the IRS gets that form, and then they match it to your tax return. Now, when it doesn’t match, well, that’s what you hear from the IRS. But this is a problem. Let me give you an example.

Let’s say on eBay you sell something for $1,000. Now, that’s over the new $600 threshold. But you paid $900, so your profit is only $100. But on your tax return, it’s a thousand. Now you, as a small business owner, say, you have to have this support that’s 900 so that you get taxed on the 100 profit instead of the 1000 gross. what is the problem here?

Sean Smith: Yes, Dan. I mean, it’s hard, in my opinion, to understand exactly how it affects small businesses because when you step back, it doesn’t seem like it should have a huge impact in my opinion. method that appears to be just a correction to the report.

But I think a lot of people, a lot of small businesses, a lot of entrepreneurs, when they start a new business, they’re a little afraid of the tax system and what they have to do, how they need to be. positioning himself as the best, I think, taking advantage and taking advantage of some of the opportunities he has. So if you had one piece of advice for small business owners when it comes to their taxes, what would it be?

DAN GELTRUDE: Well, for now, what I will say specifically about this rule is that you need to keep all the supporting documents to prove your income because if the IRS comes, the burden of proof will be on you! So when they say, like the last example, the tax income is 1000$, you need to be able to prove, wait, I have a price of 900$, my profit is only 100$. So the key here is to make sure you have all the supporting documents for these transactions. And it’s heavy.

DAVE BRIGGS: Words are heavy. And that’s why, Dan, a lot of people were afraid of that story when we heard about 87,000 new IRS employees being hired. What are you hearing from small businesses across the country about their fears of taxes and additional requirements, what do they need from the government?

DAN GELTRUDE: Well, any time you have the first three mentioned– IRS– you have a small business that is very stressed. Look, small businesses don’t have the resources to keep everything, let’s say, in the kind of order that a large company with an entire accounting department would. So there’s always the fear that you’re not necessarily paying taxes correctly, but that you may have simply made a mistake, and now you’re in trouble.

So that’s the biggest fear that small businesses have. Do we really have the resources to defend ourselves against the IRS? And mostly the answer is no.

Sean Smith: Dan, very quickly, a– I think the most common mistake you see in small businesses when they file their taxes?

DAN GELTRUDE: Well, they– it depends on how their taxes are going, but the biggest mistake I see is that they don’t understand their deductible expenses. And they end up paying too much tax because they don’t know what they can take advantage of as far as deductions.

Source link