The enormous amount of spending the government has made to support its citizens and residents during the harshest time of the pandemic has brought an immense public debt. In order to level the economy, among various measures, the government has dedicated itself to closing any flow of money from commercial activities that were not collecting taxes.
Like money received in cash, interbank transactions with apps like Zelle, Venmo, Cash App were not reported to the IRS unless they exceeded $20,000, and more than 200 transactions in the current year. And although citizen obligation demands them to declare in their taxes all the money received by concept of business (yes, that includes cash), very few people do it.
But as you heard, I said “they didn’t let”. And that is because starting in the beginning of 2022, if you receive more than 600 dollars total (regardless of why) with those payment applications, throughout the year, it will have to be reported to the IRS.
Once the year is over, third-party payment networks must send users who used those services the Form 1099-K, which is to be included in each tax return.
Form 1099-K is a tax form that is submitted at the end of the year and can include both taxable and nontaxable sources of income. The income that pays taxes is the money that is receive for work, business or services.
However, what will happen to the income I receive that is not taxable? What happens with the money that a friend returns from a loan, a gift from a relative or the help of our partner to help us with the monthly living expenses? It doesn’t matter, that will be reported to the IRS. And while technically you shouldn’t include it on your taxes (in the end, it’s not earned money) the Internal Revenue Service is within its rights to question the origin of that deposit.
Then what should I do?
Keeping good records can be beneficial in proving your sources of income if the IRS audits your tax return. Keep records such as bank statements, receipts, invoices, and other financial documents to reflect the type of income. You may consider saving your records electronically or manually.
If you’re a business owner, it’s a good idea to set up an account and separate your business and personal transactions. This way, you can easily track business transactions.
If part of that income was for a service and you don’t have an established business, consult an experienced preparer so that, depending on the type of activity, you pay the correct type of tax. This can include things such as an independent contractor, a hobby, or royalties,… Anyway, it’s a tip for another day.
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