Business owners could be taxed when using third-party apps
The American Rescue Plan Act lowers tax requirements from $ 20,000 to $ 600 starting next year.
WASHINGTON DC, DC – A viral video on Instagram has 441,000 views and has been liked over 8,500 times. He claims that from January 2022, if you receive more than $ 600 per year through third-party apps like Cash App, Venmo or Zelle, you will be taxed.
“So if you are a small business owner or gig worker and are making money from these apps, you want to start collecting your documents now because you will be taxed on it,” the video claims viral.
Let’s check: will business owners who get over $ 600 a year with these apps have to start paying taxes next year?
Our sources are Darius Hinton, CPA CMA, who is licensed in DC, The American Rescue Plan Act of 2021, and this Treasury Department proposal to improve tax compliance.
First, let’s look at small businesses.
“As a small business owner, this is true. This has happened before if you are a small business owner. Typically, with third-party apps, you sign up for what’s called a merchant account and therefore whether you were making more than $ 600 in total, or in total. You already have what’s called a 10 99k, ”Hinton said.
Hinton added that the big difference for small business owners is the dollar amount. The American Rescue Plan Act increases it from $ 20,000 to $ 600 starting next year.
“As a small business owner, I’m already filling out the 10 99k tax form. Sometimes people tip me through Cash App, Venmo, PayPal, all these different third party apps, and it’s really disheartening that the freebies I get as a small business owner aren’t taxed.
Small business owners like Turalloy Jackson, owner of reCrowned, will be directly affected. Jackson started her business in 2020. Since then, she has sold a few thousand dollars in merchandise, and third-party apps allow her customers to pay. She reminds other business owners to make sure they have business bank accounts.
“I want to make sure that my personal accounts are segregated from my business accounts, so that when I put in how much I earn and how much income I get from this business and report appropriately to the IRS,” Jackson said. .
Hinton added that if you receive tips or any other business related expense through certain apps, this is a quick fix to change them from personal account to merchant account.
“In the app, you can actually convert your account to a business account if you’re not a business,” Hinton added.
We can CHECK – yes, business owners who make $ 600 per year with these apps will have to start paying taxes on that income.
What about ordinary people who use apps to split checks and bills? Hinton said there was a proposal on the table that, if passed, would require a Form 1099k for individual users on those apps. But, if you can prove that the money was not business income, you will not be taxed.
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