As we near the end of 2024, it’s essential for you to stay informed about changes that may impact your tax and reporting obligations in the coming year. In this article, I will discuss two key updates: the changes to Form 1099-K reporting thresholds and the Corporate Transparency Act (CTA), which mandates registration with the Financial Crimes Enforcement Network (FinCEN). My goal is to provide clarity on these developments so you can prepare effectively for 2025.
Changes to Form 1099-K
What is Form 1099-K?
Form 1099-K is used to report payments your business receives for goods and services via third-party payment apps and stored value cards. These third-party payment platforms, officially known as “third-party settlement organizations (TPSOs),” include services like Visa, Venmo, Cash App, Uber, and Etsy. Historically, TPSOs were required to issue Form 1099-K only if a business met both of these thresholds:
- $20,000 in payments
- 200 transactions
Under the American Rescue Plan Act of 2021, these thresholds are being lowered in phases:
- Tax Year 2024: $5,000 and any number of transactions
- Tax Year 2025: $2,500 and any number of transactions
- Tax Year 2026 and onward: $600 and any number of transactions
Why is the IRS making these changes?
The IRS aims to reduce the “tax gap”—the difference between taxes owed and taxes collected. In 2021, this gap was estimated at $688 billion. Lowering the threshold ensures more individuals and businesses receive Form 1099-K, helping the IRS track taxable income more effectively.
What does this mean for small business owners?
If you’ve been accurately reporting your income all along, not much changes—you’ll just receive an additional form to assist with your calculations. However, keep these points in mind:
- Personal Transactions Are Excluded: Gifts, reimbursements, or personal payments (e.g., splitting a dinner bill) are not taxable and should not appear on Form 1099-K.
- Separate Business and Personal Finances: Use distinct accounts to simplify tax preparation and avoid confusion.
Reporting to FinCEN: Corporate Transparency Act (CTA)
Important Update
The requirement for small businesses to register with FinCEN under the CTA is currently on hold due to a federal court decision. While registration is voluntary for now, compliance may become mandatory, and penalties for non-compliance can reach up to $10,000.
What is the Corporate Transparency Act (CTA)?
The CTA requires certain “reporting companies” to file Beneficial Ownership Information (BOI) reports with FinCEN. This rule aims to prevent the misuse of shell companies for illicit activities.
Who Needs to File?
Generally, corporations, limited liability companies (LLCs), and similar entities must report, except those meeting the following criteria:
- More than 20 employees
- Over $5 million in gross receipts (as shown on federal tax returns)
Deadlines:
- Businesses formed before January 1, 2024 must file their BOI reports by January 1, 2025.
- Businesses formed on or after January 1, 2024, must file within 90 days of formation.
- Starting January 1, 2025, businesses must file within 30 days of formation.
- You have 30 days to report changes to your BOI information.
What Information is Required?
BOI reports must include details about “beneficial owners”:
- Full legal name
- Date of birth
- Residential address
- Unique identifying number (e.g., from a driver’s license or passport)
- A copy of the document containing the unique identifying number
Who is a Beneficial Owner?
A beneficial owner is anyone who:
- Owns or controls at least 25% of the business, either directly or indirectly
OR
- Exercises substantial control over the business
If your business was formed on or after January 1, 2024, you need to report “company applicants” in addition to beneficial owners. A business must have one or two company applicants, who are the individuals involved in filing the formation documents. This includes the direct filer (the person who filed the paperwork) and the requestor (the person who asked the direct filer to do so). Every business has a direct filer, but not all have a requestor, as some do not seek help with filing formation documents.
Given the potential for changes in the legal landscape, try to:
- Stay Informed: Monitor updates from FinCEN regarding the status BOI reporting requirements.
- Prepare Documentation: Gather the necessary information about your company’s beneficial owners to ensure readiness if the reporting requirements are reinstated.
- Consult Professionals (optional): If you encounter difficulty in any stage of the BOI reporting process, seek advice from legal experts. This is a good rule of thumb for any legal form you need to fill out, because providing false information can get you in deep trouble.
Since BOI reporting and legal reporting can get complicated, I highly recommend consulting FinCEN’s Small Business Compliance Guide. It provides a great deal of detail on what exactly FinCEN expects in the BOI report, who qualifies as a beneficial owner, and how to complete the report. If you are ready to complete the BOI report, visit BOI E-FILING. A list of frequently asked questions (FAQ) and answers can be found at BOI FAQs Q&A.
For more insights and updates, subscribe to my newsletter to stay ahead of key developments affecting your business.
This article is intended as a general guide. The following articles were consulted and are recommended for additional exploration of the concepts discussed in this article.
Anderson, M. (2024, December 21). What changes should small businesses be aware of for 2025? AP News. https://apnews.com/article/small-business-trump-regulations-2025-6578bd9bada7e640fed270baa8faaf22
Financial Crimes Enforcement Network. (2024a). BOI FAQ Q&A. https://www.fincen.gov/sites/default/files/shared/BOI-FAQs-QA-508C.pdf
Financial Crimes Enforcement Network. (2024b). Financial Crimes Enforcement Network U.S. Department of the Treasury Version 1.1 December 2023 Small Entity Compliance Guide Reporting Requirements. https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
IRS. (2017). Understanding your form 1099-K | Internal Revenue Service. https://www.irs.gov/businesses/understanding-your-form-1099-k#personal
IRS. (2020). IRS updates tax gap projections for 2020, 2021; projected annual gap rises to $688 billion | internal revenue service. https://www.irs.gov/newsroom/irs-updates-tax-gap-projections-for-2020-2021-projected-annual-gap-rises-to-688-billion?utm_source=chatgpt.com
White, W. (2024, January 2). New law requires most small businesses to register with the federal government. Critchfield, Critchfield & Johnston. https://www.ccj.com/new-law-requires-most-small-businesses-to-register-with-the-federal-government/
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