Preparing Your Business for the Upcoming Changes to the 7115 Threshold in 2022
If you’re a business owner, it’s important to be aware of the upcoming changes to the 7115 threshold in 2022. These changes will have significant impacts on your business, so it’s important to prepare now in order to avoid any penalties or fines down the line. Here are a few things to keep in mind as you prepare your business for these changes:
1. Know your numbers.
The 7115 threshold determines whether or not your business needs to fill out and submit a 1099 form for each vendor you do business with over the course of a year. Beginning in 2022, this threshold will be reduced from $20,000 and 200 transactions to just $600 in yearly payments to a vendor. This means that if you paid a vendor any amount totaling over $600 in the year, you will need to issue a 1099 form. Make sure to keep track of all payments made – especially if there are multiple payments over time that add up to over $600.
2. Plan ahead.
Now that the threshold has been drastically reduced, businesses who may not have had to send out 1099s before will now be required to do so. Make sure you have a plan in place to handle the additional paperwork. Consider hiring a bookkeeper or accountant to help manage the process, or researching tools that can help automate the process for you. The last thing you want to do is to scramble at tax time.
3. Communicate with your vendors.
It’s not just your business that will be affected by these changes, your vendors will be as well. Make sure you communicate with your vendors so they are aware of these changes. They’ll need to provide you with the correct tax identification number to be included on the 1099 form you send them. If a vendor fails to provide you with this information, you may be required to withhold taxes at a higher rate.
4. Keep accurate records.
Make sure to keep detailed records of all payments made to vendors throughout the year. Having accurate and complete records will make it easier to fill out 1099 forms when the time comes and will help you avoid penalties for non-compliance. Investing in accounting software or tools that can help streamline the recordkeeping process is a good idea.
5. Don’t wait until the last minute.
Don’t wait until the last minute to start preparing for these changes. Plan ahead and start gathering the information you’ll need well in advance of tax time. If you’ve never issued 1099 forms before, take the time to educate yourself on the process. Being prepared will save you time, money, and headaches down the line.
In Conclusion:
While these changes to the 7115 threshold may seem daunting at first, if you take the time to plan ahead and educate yourself, they don’t have to be. With the right knowledge and tools, you can easily navigate these changes and stay compliant with the law. Make sure to communicate with your vendors and keep detailed records – and don’t wait until the last minute to start preparing. By doing so, you’ll set yourself and your business up for success in the years to come.
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