At Globe Live Media we tell you what changes and what doesn’t when filing your taxes with the IRS this year if you are a regular user of third-party payment platforms such as Venmo and PayPal. We consult with Miguel Burgos, TurboTax tax expert, to answer all your questions
One of the most important news that the United States Internal Revenue Service (IRS) has announced in recent weeks is the implementation of new tax responsibility rules generated by transactions and income obtained via Venmo, PayPal or Cash App.
These rules, which were delayed for fiscal year 2023 (which will start in 2024) and will be implemented as part of the American Rescue Plan, caused a lot of confusion among users who use these applications on a regular basis, and even generated certain myths that should be dispelled to avoid misunderstandings.
Strictly speaking, and for the avoidance of any doubt, let’s clear up the first myth: during fiscal year 2022 (that is, this year), third-party payment organizations such as Venmo, PayPal, or Cash App will not have to report transactions that are the same or exceed the $600 threshold.
This means, in a few words, that, during this year, the rule corresponding to previous years is still in force (until now): third-party payment organizations must only report operations that exceed $20,000 dollars in payments of more than 200 transactions.
Does this mean that you should forget about this topic? In the opinion of Miguel Burgos, a tax expert from the TurboTax organization consulted by Globe Live Media, the answer is: no. “It’s important for taxpayers to know when the new rule is going to apply, but they also need to know all of its aspects,” he said.
That is why we consulted it to dispel the main myths surrounding this new IRS rule.
What are the main myths surrounding the new IRS rules around third-party payment platforms like Venmo, PayPal or Cash App?
For Miguel Burgos, this new rule or notification from the IRS regarding third-party payment platforms has generated great concerns for taxpayers, since more and more people use these applications to work on their own and make electronic transactions easily.
Therefore, it is imperative that you fully understand what is new about this IRS rule, as well as the myths and misinformation that have arisen around it, such as:
1- Will I have to report all the payments I receive through these third-party payment applications?
The answer is: it depends.
“If you make business transactions through payments to third parties, it is likely that you have a tax liability and must report it to the IRS through form 1099-K, explains Miguel Burgos.
But this does not mean that this responsibility arises for all payments.
Day-to-day transactions, such as paying a friend for dinner, or giving a gift to a relative or friend, will not create a taxable liability for the IRS.
You may be wondering: how will the IRS know that a transaction is business or personal in order to know whether or not you will receive the 1099-K form?
“We do not have established guidelines, in black and white, at least not yet, from the IRS, that tell us how this separation is going to be done,” explains Miguel Burgos. “What we do know is that they intend to achieve this transition throughout this year.”
2- They say that applications like Venmo, PayPal or Cash App will not report the income you receive as a self-employed entrepreneur. It’s true?
The answer is no.
If you have used third-party payment platforms for business purposes, such as the sale of goods and services, you will receive a 1099-K form.
In fact, if you have net income from self-employment of more than $400, you must file a Self-Employment Tax Schedule SE, which is filed with Schedule C and your personal taxes.
3- If I sell an item on Ebay, for example, and I get more than $600, will I have to report this transaction to the IRS?
You may receive a Form 1099-K for the sale transaction. Form 1099-K will show the gross amount you received, but it won’t take into account what you paid for the item.
If you sell the item for more than you paid to buy it, you’ll have to pay tax on the net gain. If you sell the item for less than what you paid to buy it, you will have a loss and you will not owe tax.
Is the 1099-K form a tax return?
“Form 1099-K is an information return. Report to the IRS so they can better monitor your tax return. However, this does not have the amount of tax that you are going to pay, only what was processed through third-party platforms. Your income may be higher or lower. You also have to report expenses. That is why it is important that they keep accounting records of their own business.”
What recommendation should you take into account when addressing this new IRS rule?
The most important recommendation that the tax expert, Miguel Burgos, to all taxpayers, is that they divide their personal accounts from their business accounts.
“When you have your own business, and you use your personal account as a business account, it can create a lot of confusion around your expenses. When reviewing your expenses, it may not be clear what was a household expense, what was from a client, what was from a family member. That is why it is important to make a distinction, ”he asserted.
To do this, he recommended that users investigate whether the applications offer the option of signing up for a business account (which usually involves a small additional cost), which will allow you to manage your business invoices optimally.
“There is a responsibility that falls on us, the taxpayers, who must responsibly divide the operations we do through third-party payment platforms,” Burgos said.
The Latino community can request the services of TurboTax to clarify all their doubts regarding the IRS rule
Fortunately for the Latino community in the United States who have more doubts about this rule or their taxes in general, there is TurboTax.
Through its web portal, the Hispanic community have at their disposal tools that will help them find out if they qualify for certain tax credits, or calculators that will help them determine their taxes.
It should be noted that they also have the possibility of speaking with a bilingual tax expert, which will allow them to access the best information available on taxes in the United States.
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