Area business owner, expert talk change to payment app taxes
It's not a new tax: it's a rule change hidden in the American Rescue Plan Act
LEXINGTON, Ky. (WTVQ) – The deadline to file your taxes is Monday, April 18th, which means it’s crunch time for CPAs across the country, and perhaps you if you haven’t filed yet.
If you have a side gig or a hobby that you’re making money from and you use Venmo, CashApp, or other third party payment networks for business transactions, you may have gotten a surprise this tax season: a tax form from those payment apps that you use.
It’s not a new tax, rather, it’s a rule change hidden in the American Rescue Plan Act. The $1.9 trillion dollar stimulus changed tax reporting rules for third party payment networks.
Lexington native Trevor Rapp is the owner of vintage clothing brand Rapp Goods, and uses payment apps when he hosts ‘pop-up’ shops in the area.
“In the past couple years I’ve used payment services like Venmo, PayPal, CashApp,” said Rapp.
Venmo, CashApp, and other payment services will be required to send small businesses who use the payment platforms 1099K tax forms if they make $600 or more.
Rapp says this may affect his business in the future.
“It definitely has an impact as a small business, as I do pop-ups, just to be mindful of preparing for that percentage of tax rate and how much I owe, even just upcharging too,” said Rapp.
Previously, you’d have to make over $20,000 and have over 200 business transactions over the year to be taxed on the transactions.
But don’t panic: according to University of Kentucky tax law professor Dr. Jennifer Bird-Pollan, it’s just a way to make transactions clearer, just keep careful records of everything you charge and make.
“So I think keeping that in mind and maybe making a small investment in some kind of professional assistance is probably worth it in most cases,” said Dr. Bird-Pollan.
The good news in all of this? Taxes on these transactions may be beneficial for you: you could get some deductions.
“If you have a hobby that sort of expands into suddenly a money-making activity, you may not thought of some of the costs you have associated with that. Which could provide a tax benefit to you,” said Dr. Bird-Pollan.
However, remember, you still won’t be taxed on personal transactions. The rule only applies if you provide goods or services. If you’re just charging your friend for a coffee or your roommate for utilities, there’s no need to worry.