February may be the month of romance, but it is also a time when we need to think about something that inspires very little love: taxes. April is not far away, and the taxman is always waiting. This year, federal and most state income taxes are due Monday, April 15. Now is a good time to start getting your paperwork together and putting aside money for your upcoming potential tax bill.
Yes, that means you. Even in this “high-risk” industry, merchant acquirers/payment facilitators, merchants and content creators are all required to file tax returns. This month, we will look at what the requirements are and how you can stay ahead of the taxman.
Every day your tax return is delinquent, the IRS typically charges interest, along with failure-to-file penalties and failure-to-pay penalties, until you file your return and pay your balance due.
All Electronic Payments Are Taxed
If you’re lucky enough to live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, you probably know that there are no state taxes collected. In those states, preparing for the 2024 tax deadline is a little easier. For the rest of the taxpayers across the U.S., however, it’s time to start gathering the documents and information needed to file both state and federal taxes.
Merchant acquirers/payment facilitators are required to issue 1099-Ks to the government and a copy to all merchants by Jan. 31 for funds processed in 2023. The form is needed if you accept money electronically for goods or services, and will show gross processed volume. That information is needed to help merchants reconcile chargebacks, refunds and fees for net sales. It is a way for the government to ensure merchants report their gross revenues properly.
In 2008, the IRS began enforcing new regulations that require merchant acquirers/payment facilitators to report on any merchant that processed over $20,000 in annual volume or 200 transactions. This rule was modified in 2022 and it is now required to report on any merchant that has processed even $600 annually. You should be able to match the issued 1099-K gross revenues with the annual sales in your acquiring bank’s or payment facilitator’s back office.
If your payment processor also handles affiliate and content creator payouts, it is up to the merchant to issue the 1099-K to the government and provide copies to affiliates and content creators. Your payment processor should be able to provide the payout data so you can produce the 1099-K.
Content Creators Are Not Exempt
Just as merchants are required to pay taxes, so are content creators. Last December, it was widely reported that the IRS was reviewing high-grossing OnlyFans content creators. Much of the investigation was driven by publicity about OnlyFans creators and their public display of wealth. Whether you are public about your success or not, make sure that you can back it up with the taxman.
Tax Timing and Options
Can’t get it all together in time? Don’t worry. If you miss the tax deadline, there are options. If you owe taxes and miss the April 15 deadline, you should pay as soon as possible. Every day your tax return is delinquent, the IRS typically charges interest, along with failure-to-file penalties and failure-to-pay penalties, until you file your return and pay your balance due. Don’t put off filing just because you can’t afford to pay the total amount due by the filing deadline.
You can minimize failure-to-file penalties by filing as soon as possible and paying as much as you can upon filing. You can set up an installment plan to pay the balance. Need more time? Don’t let a looming tax deadline force you to rush through the tax filing process and possibly make a mistake on your return. Simply submit a request for an extension.
The IRS typically grants a six-month extension of the tax filing deadline to anyone who requests it. Just keep in mind that the tax extension gives you more time to file your return, not more time to pay the tax you owe. You’ll need to estimate the amount you owe and make your payment by the tax filing deadline, even if you file an extension. If you have overpaid your taxes, there is no penalty for filing your taxes late, but you should typically file by Oct. 15, which is the end of the six-month extension. And according to the IRS, if you’re filing electronically and are due a refund, you can expect it within 21 days if you choose direct deposit and there are no issues with your return.
Lastly, I always recommend working with a tax consultant to help you with any tax questions you might have. Their experience might help save you tax dollars owed.
Cathy Beardsley is president and CEO of Segpay, a merchant services provider offering a wide range of custom financial solutions including payment facilitator, direct merchant accounts and secure gateway services. Under her direction, Segpay has become one of four companies approved by Visa to operate as a high-risk internet payment services provider. Segpay offers secure turnkey solutions to accept online payments, with a guarantee that funds are kept safe and protected with its proprietary Fraud Mitigation System and customer service and support. For any questions or help, contact sales@segpay.com or compliance@segpay.com.
