Small business owners nationwide tend to be honest in all their companies’ dealings, but as the old saying goes, a few rotten apples may spoil the bunch. As a result, the Internal Revenue Service may now be taking a closer look at companies which it believes could be underreporting cash revenues.
The IRS has recently been sending out some 20,000 notifications about 1099-K forms filled out mostly by small businesses, according to a report from Small Business Trends. In these, the tax agency explains they feel companies might have underreported their gross receipts, based on revenues disclosed to the IRS already versus data culled from payment card receipts and other sources which show that larger-than-expected amounts of purchases had been made on cards only, raising red flags about the potential for cash transactions to have gone largely unreported.
However, these notices may arrive at businesses and cause something of a panic despite the fact that, overall, credit and debit card use has largely been on the rise across the country for some time now, the report said. By 2017, the number of credit card purchases is expected to rise sharply, climbing to about one in every three transactions nationwide, and up from just 29 percent two years ago. Further, that same data suggests that this trend is only likely to continue push cash to the periphery, with those purchases making up just 23 percent of all transactions in the same time period. This trend is being driven largely by young people between the ages of 18 and 33 years old, who seem to vastly prefer companies that accept credit card transactions rather than cash-only establishments which limit their options.
Companies receiving such notices may want to consult with a tax professional upon their having received such a notice, the report said. Doing so would allow them to better review all their options and make sure they are fully prepared to deal with whatever steps may come next from the IRS. As long as everything is as it should be, there may not be much, if anything, for owners to worry about.
When doing due diligence with regard to an independent company’s finances, owners should also take the time to ensure that they’re not paying too much for their small business insurance coverage. Looking into more affordable liability insurance options and the like may help give owners more financial flexibility going forward.