The article " Is the IRS Taxing PayPal, Venmo, Zelle, or Cash App Transactions? Here’s What You Need to Know ″ was originally published on Grow (CNBC + Acorns). "If you did advertising, if you do all the hair cutting in your home, you may have a home office deduction." "So if you're cutting hair on the side, and you made $1,000, and you've paid for scissors and combs and hair products, you can deduct all those items against your $1,000," he says. Any costs associated with keeping your business up and running can be deducted and help offset your tax burden. Keep in mind that the IRS only cares about your profit, says Howard Samuels, a certified public accountant at Samuels & Associates. However, in January, "the threshold is being reduced dramatically, from $20,000 to $600, with no minimum number of transactions," Rosenthal says. A seller would only need to report income to the IRS if they had received $20,000 worth of payments per year and there were at least 200 transactions on their account.
Receiving a 1099-K and reporting income from payments received on a peer-to-peer payment system isn't new: The tax reporting requirement started on 2012, though the threshold then was higher. Wilson suggests creating an email account designated for receiving e-receipts to keep your transactions organized.īusiness expenses can help offset your tax burden It's important to note that just showing the IRS a bank or credit card statement doesn't qualify as a receipt. If you're the recipient, you're typically not subject to gift tax. The annual gift-tax exclusion for 2021 is $15,000 per donor, per recipient, meaning you don't need to pay taxes on a gift given that equaled $15,000 or less. If money was received as a gift, you may need to explain the relationship between you and the person who gave you the present.
Gather your supporting documentation Gather your invoices and receipts as supporting documentation to show which transactions were income and which weren't."I have our clients printing their reports so we can format an Excel sheet and they can denote, 'Here's revenue, here's what came from my aunt, here's what came from my sister,'" Wilson says. Distinguish your transactions Once you've downloaded your transactions, determine which ones were business transactions and which were personal.Print a transaction report A lot of peer-to-peer payment platforms allow the user to print transaction reports.
#Cash app and paypal logo professional
And even if you have the help of a professional accountant, you'll want to take these three steps on your own, Wilson says. If you are earning money on one of these apps though, you may want to consult a tax professional. If you go out to dinner with a friend and send them your half of the bill via a cash transfer app, that transaction is not taxable, either, she says. As long as you can prove with a receipt that you originally paid more than $1,200 for that couch, that is not considered taxable income, Wilson says. This new reporting requirement only applies if someone is buying or selling goods and services using a peer-to-peer payment platform, says certified public accountant Sheneya Wilson, the founder and CEO of Fola Financial. If you have a side hustle walking dogs, for example, and you're getting paid through Venmo, that is taxable income and will need to be reported to the IRS.īut let's say you sell a couch to someone online for $1,200. They don't themselves determine tax liability." The idea that any payment received over $600 will be automatically taxed as income is false, he explains. "There's a little bit of confusion over this Venmo rule," says Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute. More from Grow: I made $30,000 at my first job and now earn over $200K a year 'A cool destination to start over': Millennials are flocking to Portugal Suze Orman: 3 investing mistakes that can make you a 'financial fool' It applies to your 2022 taxes, which you'll file in the spring of 2023. The new reporting requirement only applies to sellers of goods and services, not personal payments, like if someone paid you back for dinner.Īnd it doesn't apply to the taxes you're filing this year. Those posts refer to a provision in the American Rescue Plan Act, which went into effect on January 1, 2022, according to which anyone receiving $600 per year using Venmo, PayPal, Zelle, or Cash App will receive a 1099-K and be required to report that income on their taxes.
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