Did You Use PayPal, Venmo, or CashApp in Your Writing Business Last Year?
Yes, it’s tax season. I was seriously shocked to get a 1099-K from PayPal this year. I didn’t know they had started already. Don’t get…
BUSINESS | MONEY | TAXES
Did You Use PayPal, Venmo, or CashApp in Your Writing Business Last Year?
Yes, it’s tax season. I was seriously shocked to get a 1099-K from PayPal this year. I didn’t know they had started already. Don’t get caught off-guard
Photo by Carlos Muza on Unsplash
Note: This is not financial or tax advice. It discusses protecting yourself from a possible IRS audit or delayed refund. However, as a small business owner, you should track credits and debits and pay taxes on your income as a freelancer.
Hey friends! Let’s chat about something important — your taxes.
Specifically, your taxes this year if you’ve been using PayPal, Venmo, or CashApp for your business.
This information could save you from an IRS audit or delayed refund if you’re a freelancer, small business owner, or side hustler.
I use PayPal for everything business-related. I can do my invoices there and create helpful reports.
Did You Use PayPal, Venmo, or CashApp Last Year?
The IRS is rolling out new rules for reporting income through third-party payment apps.
Starting in 2024, if you made over $5,000 last year using one or more of these platforms, you’ll likely get a 1099-K form.
This form is the IRS’s way of keeping tabs on untaxed income.
This doesn’t mean personal payments, like splitting rent or reimbursing a friend for lunch, are taxable.
Only payments marked as goods or services should appear on the 1099-K. So, yes, your roommate’s rent share is safe!
However, that doesn’t mean the information reported to the IRS is totally accurate.
I lent money to one of my children and we both have small businesses and use PayPal. Well, guess what? When they paid it back, it became part of my 1099-K.
So, I’ll have to flush that out through the IRS Schedule C. But first, I will ask a tax professional exactly how I should do that.
Photo by Marques Thomas on Unsplash
This Is What PayPal Has to Say About Reporting
“Form 1099-K is an IRS informational tax form that is used to report goods and services payments received by a business or individual in the calendar year.
While payment service providers, like PayPal and Venmo, are required by the IRS to send customers a Form-1099K if they meet the threshold amount ($5,000 for calendar year 2024, $2,500 for calendar year 2025, or $600 for calendar years 2026 and beyond), there are certain amounts included on the form that may not be taxable.
PayPal is required to report the total gross amount of payments received for goods and services which can include:
- Amounts from selling personal items at a loss
- Refunded amounts
- Processing fees
However, certain amounts may not be considered taxable income to you.
We encourage customers to speak with a tax professional when reviewing their 1099-Ks to determine whether specific amounts are classified as taxable income.” — **Will PayPal report my sales to the IRS? | PayPal US.**
I hope that helps. I would advise asking a tax professional if you still have questions.
What is a 1099-K?
A 1099-K is like a summary of your earnings through payment apps.
Knowing how this works is crucial if you’ve been freelancing or running a side hustle.
Previously, the threshold was $20,000 and 200 transactions. Now, it’s dropping to $5,000 in total earnings, making this change relevant for many of us.
However, none of these thresholds relieve you of your duty to report income.
If you used PayPal, Venmo, or CashApp for freelance income or business transactions last year, you should get an IRS Form 1099-K.
If you had more than $5000 in earnings reported to one of these Apps and didn’t receive a 1099-K, you should ask why not.
If they sent one to the IRS and you report something different, you could open yourself up to an audit or delayed refund.
Tax Return — Pexels — Mark Youso — 420893752–15116664.
How Does This Impact Freelance Tax Filing?
For many freelancers, this simplifies things. You’ll get one form summarizing your earnings from these platforms.
But you still need to report all income, even if you don’t hit the $5,000 threshold. That’s where tracking your earnings becomes essential.
I learned this the hard way. The first year I freelanced, I waited until tax season to organize my income.
Three days of combing through PayPal, credit card, and bank statements taught me a lesson: stay on top of it monthly!
I now use an old-school accounting ledger I bought for $7.99 at the bookstore and track monthly credits and debits.
However, there are many excellent apps you can use for accounting.
Will the IRS Tax Personal Transactions?
Nope! Gifts, rent splits, or casual reimbursements aren’t taxable.
Make sure those payments are marked as “personal” on the app. Mistakes can happen, though, so double-check your 1099-K for errors. If you spot anything wrong, you can clarify it on your Schedule C.
If you aren’t using a Schedule C to report income and expenses, you could miss out on offsetting income from expenses.
If I buy printer ink for my business, I deduct that expense. I claim the percentage of my home office under expenses when I can.
It’s not always possible if you lose money.
Many believe they don’t earn enough from writing to use the Schedule C outlining their credits and expenses, but spending more than you earn on your business could mean a larger refund when you claim those expenses.
If you’re leery of using a Schedule C, ***Profit or Loss from Business***, pay a tax professional to do it for you the first year and copy them next year.
You might even be able to deduct what you paid them next year.
Photo by Dimitri Karastelev on Unsplash
What Can You Do to Prepare?
Get your tax info ready.
Payment apps will ask for your EIN, ITIN, or Social Security number to ensure accurate reporting. Also, consider using accounting tools or apps to stay organized.
Trust me, the money you save on headaches will be worth it.
Taxes don’t have to be stressful. Let’s tackle this season with confidence and a solid plan.
That’s all for today. Come back soon or read some of my other hundred or so other business-related articles on the Data Driven Investor.
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About the Author Photo by Jean Springs from Pexels.
Stephen Dalton is a retired US Army First Sergeant with a degree in journalism from the University of Maryland and a Certified US English Chicago Manual of Style Editor. Also, a Top Writer in Bitcoin, Business, Investing, Nutrition, Travel, Fiction, Transportation, VR, NFL, Design, Creativity, and Short Story.
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