If you pay vendors through a third-party payor like PayPal, Venmo, Zelle, and more, you need to be aware of a significant change in the rules that went into effect on Jan 1st, 2022. If you miss this update, you will have a very difficult time when you prepare the 1099s in 2023.

What is a 1099-K?

A 1099-K is a form you could receive, so you don’t prepare these. If your customers pay you with credit cards or if they pay you through a third-party network such as PayPal, Zelle, Venmo, etc, then you will receive a 1099-K if the amount that is processed exceeds the threshold. For the calendar year of 2021, the threshold is transactions totaling at least $20,000 AND at least 200 transactions.

Similar to all 1099s, these forms are sent to recipients and to the IRS by January 31st following the year. Of course, the IRS uses these to confirm that folks have reported at least the amount of income shown on the form.

Your vendors might receive a 1099-K as well. This is why the IRS instructions say that you do not report payments made by credit cards or through third-party networks on the 1099-NEC and 1099-MISC that you file because it is possible for the vendor to have payments reported twice: once on the forms you sent and again on the 1099-K.

Because of this “loophole” many sole-proprietors and independent contractors did not receive any 1099s. As a result, accountants (including us) recommended that you report all payments to eligible vendors regardless of the method of payment. This was to prevent you from the potential liability of failure to file, even though the IRS rules created this loophole.

In practice, because the threshold was so high many independent contractors and smaller companies did not receive a 1099-K, thus the vendor was rarely faced with this duplicate reporting situation.

What is changing in 2022?

Beginning Jan 1, 2022 (which is for forms reported in 2023, the threshold has changed considerably.. The new threshold is payments that exceed $600 and any number of transactions.  This means that many more vendors will receive a 1099-K, specifically the ones who have benefited from the loophole.

Let’s say that you paid a vendor $1,000 through Venmo. If you continue to report all payments made through a credit card or third-party network, that $1,000 payment will now show up on both the 1099 that you send and the 1099-K that Venmo will send. The vendor will not be happy, and you will get a call to fix it.

At the end of the year (which is actually in January), when you pull your report of the payments to the vendors, it is easy to exclude the credit card payments. The tricky part is excluding the payments made through a third-party network. 

Most wineries don’t keep a balance in their PayPal, Venmo, Zelle, etc accounts, because they typically only use those networks when they need to pay a vendor immediately or if the vendor is not set up to receive credit card payments (or if the vendor is playing with the loophole). The wineries set up their accounts so that their bank account is debited the amount of the transaction. The transactions show up on the bank statement as a debit to PayPal/Venmo/Zelle/Other, but in QuickBooks, the entry is either a check (QB Desktop) or an expense (QBO) filled out to the vendor. Sometimes there is a comment in the memo saying that the payment was through a network.

The problem is that at the end of the year when you prepare your 1099s to send to your vendors, there is no way to identify those third-party payments so you have no choice but to include those amounts in the total amount paid to the vendor on the 1099s. You have some options on how to fix this:

• Stop paying vendors through PayPal/Venmo/Zelle/Other third-party network
• Take the time to review all the payments and hope that you put a note in the memo
• Make some small changes to QuickBooks and record these payments slightly differently

We will be explaining our recommended procedure to the Silver Club members at the next office hours.

Learn more about the Silver Club – Click Here

We also have a mini-course on filing the 1099s. This course is updated every year to handle changes in the laws. The 2022 version includes a lesson on how to set up your QuickBooks file so that you are ready for the 2023 reporting season.

Learn more about the Happy 2022! Happy 1099! Mini-Course – Click Here

Most wineries dipped their toes into the world of virtual wine tastings in the spring of 2020. For some wineries, these tastings have stuck and continue to be a source of both revenue and new fans and club members. Check out what some Napa Valley wineries are doing.

From a business point of view, I think the virtual wine tasting channel is valuable for many reasons. First, you can isolate the costs of running the virtual channel very easily. The staff is scheduled only when you have guests to entertain, so no more waiting around or guessing how many staff to plan for a weekend. 

Second, you can isolate the advertising costs. Your goggle or facebooks ads have tracking codes so you can see the conversion rate and from that calculate the total revenue. There is a direct correlation between a specific ad and the revenue generated from that ad. Back in the 1800’s John Wanamaker said that half of his advertising was wasted, he just didn’t know which half. These tracking codes eliminate that blind spot. 

Third, once someone attends a virtual event, you now have their email address and so you can send them news another emails. With CRM tools built into most winery POS programs, you can track the lifetime value of each customer. You can also identify how they became customers of yours. The revenue from the tasting kits should cover the marketing cost, so the added value of future sales either as a fan or as a Club member means additional revenue down the road. 

Personally, I think the virtual tasting channel is an exciting opportunity to attract a huge number of wine lovers who just cannot make it to wine country. Those folks would love to be able to “visit” wine country from the safety and comfort of their homes. I also like virtual tastings because the best virtual tastings I have attended were a collaboration among several wineries or between a winery and a restaurant. The wine industry has a long history of being very generous and helpful with their neighbors even though they are technically competitors. The virtual channel keeps that spirit alive.

One morning these rag-a-muffins decided to venture into the jungle (Maui’s north shore) to explore. They figured that they might get hungry so they tossed a muffin and a few bananas into a knapsack and headed out. Several hours later they returned home, muddy and starving (but otherwise safe and healthy). That was over 10 years ago, yet when they tell the story about that day what they remember is that they wished they had planned a little better. Apparently one muffin and a few bananas for 4 kids was just not enough food. They were not fazed by the “getting lost” part.

The quarantine, social distancing rules, and fires have created a new world that is more like a jungle than anything we are used to. You might need more than a muffin and a few bananas for the journey.

Now is the time to get your QuickBooks file set up with our Fundamental Five so that you can make a plan for next year. Stay tuned for more.

What are the Fundamental Five? Check out the Discover QuickBooks for Wineries course.