The digital age has ushered in a plethora of conveniences, and among them are payment apps. Apps like Zelle, Venmo, PayPal, Cash App, and others have become the modern-day wallet, allowing for quick and seamless money transfers. However, as we approach tax season, there’s a crucial update taxpayers should be aware of. The IRS has new requirements for reporting transactions on these platforms.
The New Requirements:
Beginning in the 2023 tax year, the IRS will require taxpayers to report all transactions totaling $600 or more through payment apps. Previously, this threshold was set at $20,000 with a requirement of over 200 transactions. The lowered threshold means users will need to be diligent about keeping records of their digital transactions.
Why the Change?
The IRS believes that lowering the reporting threshold will increase tax compliance. It helps ensure individuals and businesses are paying the appropriate amount of tax on received funds. With the widespread use of these payment apps, there’s potential for substantial unreported income.
Several studies found that a growing number of individuals rely on these apps. They use the apps for side hustles, business transactions, and even personal gifts. A staggering 68% of millennials and Gen Z individuals have used apps like Zelle and Venmo regularly, with an average annual transaction of about $272.
The Broader Impact:
While these new requirements aim to ensure a fair tax collection, there are concerns about how this change will impact the average user. For instance, small business owners, freelancers, and those with side gigs might face more extensive documentation requirements. This is especially true if they use these apps for both personal and professional transactions.
Responses from the Apps:
Several payment platforms have begun rolling out features and guidelines in response. Venmo, for instance, has introduced a new transaction categorization feature, allowing users to tag payments as “business” or “personal.” Similarly, Zelle is anticipated to launch an awareness campaign, ensuring its users are cognizant of the tax implications of larger transfers.
Benefits for the Diligent:
For those who have always kept meticulous records, this change might seem insignificant. In fact, it could level the playing field, ensuring that everyone pays their fair share of taxes. Transparent reporting could also help in future financial endeavors, such as applying for loans or mortgages, where a clear record of income can be beneficial.
101 Financial’s Commitment:
At 101 Financial, we understand these changes can be overwhelming and are committed to supporting our members through this transition. Here’s how:
- Educational Workshops: Regular sessions will break down these regulations, ensuring that members have a comprehensive understanding of their tax obligations.
- Digital Tools: 101 Financial will provide tools and templates to help track and categorize transactions, ensuring that members can easily differentiate between taxable income and personal transactions.
- Community Support: Through online forums and community groups, members can share their experiences, tips, and solutions, fostering a collaborative approach to navigating these changes.
Final Thoughts from 101 Financial:
It’s essential to view this shift not as a burden, but as an evolution in the digital financial landscape. The key is preparation. Set aside time monthly to review and categorize your digital transactions. If you’re in business, consider periodic check-ins with your accountant to ensure you’re on track.
In these times of change, education remains your most powerful tool. 101 Financial is dedicated to offering courses, webinars, and resources tailored to these shifts in the financial realm, ensuring our community remains ahead of the curve.
You can use the 101 Financial App to help track this incoming revenue and gift sourcing to help with your future records.