As we step into the new year, freelancers, side hustlers, and small business owners who use third-party payment platforms like PayPal, Venmo, and Cash App should be aware of a significant change in IRS reporting requirements. Starting with your 2024 taxes (due in 2025), these platforms will report earnings over $5,000 to the IRS, making it easier to track your business and personal finances. If you're someone who uses these apps for business transactions, this change could impact how you file your taxes, and it’s crucial to understand what it means for you.
The 1099-K Tax Form: What You Need to Know
The IRS requires platforms like PayPal, Venmo, and Cash App to send out a 1099-K form to users who earn self-employment income through their apps. While this form isn’t new, the reporting requirements have changed. Previously, these platforms only had to report earnings above $20,000 and 200 transactions. However, beginning in 2024, the threshold is lowered to $5,000. This means if you made $5,000 or more through these payment apps, you’ll receive a 1099-K, which reports your earnings directly to the IRS.
Whether you're a freelancer, contractor, or small business owner, the IRS has always considered income earned via these apps to be taxable—this new rule simply ensures that all income is properly reported and tracked.
What Transactions Are Affected?
This new rule only applies to self-employment income. For example, if you’re paid for freelance work, goods, or services, that income will be tracked. However, personal transactions—such as money sent from family or friends or reimbursements—are not taxable, and these will not be included on the 1099-K form.
Here’s a simple breakdown of what’s taxable versus non-taxable:
Taxable: Payments for goods or services (e.g., freelance work or selling products online).
Non-Taxable: Payments between friends or family (e.g., reimbursing a roommate for their share of rent).
What to Do Now
To prepare for this change, it's important to keep thorough records of your business transactions. Make sure you separate your business payments from personal ones on platforms like PayPal, Venmo, and Cash App to avoid confusion. You may also be asked to confirm your tax information, such as your Employer Identification Number (EIN) or Social Security Number (SSN), with these apps.
While these payment apps will help by sending the 1099-K directly to the IRS, it’s still essential to track your earnings manually or with the help of accounting software like QuickBooks. This will ensure that everything is reported accurately, preventing issues when it comes time to file your taxes.
How Silvers Financial Services Can Help
At Silvers Financial Services, we specialize in helping small business owners and freelancers track both personal and business finances with ease. We understand the challenges of managing multiple income streams, especially with these new IRS reporting changes. Our expert team can help ensure that your income is properly documented and your tax filings are error-free. We offer comprehensive accounting services that not only track your earnings but also guide you through tax laws, ensuring that you’re always compliant and prepared for tax season.
Here’s how we can help you:
Track Your Business and Personal Finances: With our help, you can clearly separate business income from personal transactions, making it easier to report on your taxes.
Stay Compliant with Tax Laws: We help you understand the impact of tax changes like the 1099-K form, so you don’t have to worry about missing important deductions or underreporting income.
Tax Planning and Filing Assistance: From gathering the necessary forms to filing your taxes, we’re with you every step of the way to make the process as stress-free as possible.
Peace of Mind: We ensure that your taxes are filed correctly, minimizing the risk of costly mistakes and giving you peace of mind that your finances are in order.
Don't Wait Until the Last Minute
As the IRS begins tracking earnings through third-party payment apps in 2024, now is the perfect time to get ahead of the game. At Silvers Financial Services, we’re ready to assist you with all your accounting needs. Whether you need help with tax planning, bookkeeping, or understanding new tax laws, we’re here to guide you to financial success.
Contact us today to get started on organizing your finances and ensuring you're fully prepared for the upcoming tax season!
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