Let me start with this: If you were already reporting your income from side hustles on your taxes then you don’t have to worry about the new tax reporting threshold.
Skip this story. Do something else with your life. The new tax rule does not matter to you.
However, if you’re an American who answers ‘yes’ to ANY of these 3 bullets then I suggest you stick around:
- You plan on starting a new side hustle in 2023;
- You plan on using apps like Venmo, Cash App and Zelle to send money to friends in 2023;
- You’ve been making extra money for years and not reporting it.
Before we dive in, I suggest using a service like TurboTax for your finances. It’s how myself and many other freelancers do their taxes every year. You can also try H&R Block.
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Here are the basics
2022 was supposed to mark the first year Americans are required to report anything they sell for a profit to the Internal Revenue Service (IRS). Now, the IRS says 2022 will be the same as previous years and 2023 will be a transitional year.
Cash app services like PayPal, Cash App, Venmo, etc. were never required to report this information to the IRS in the past, so guess what? They didn’t.
What was the previous tax rule?
Unless you did over $20,000 and more than 200 sales you didn’t have to worry about the IRS tracking down you and your family.
The IRS has seen this new wave of side hustlers on the horizon and it wants its taste (Sopranos reference). This is why side hustlers will start to see 1099-K forms from every source of income they have after 2023-2023.
Who does this impact?
Wondering if this new rule applies to you? It more than likely does, even if you don’t do side hustles at all. Unless you were already reporting ALL of your income, which you should’ve been doing, then this new rule applies to you.
If you resell on sites like eBay, Mercari and Poshmark then all eyes will be on you. These sites didn’t report your income to the government in the past but they will now.
Sending money to your friend to split lunch via Zelle isn’t something you really have to worry about. Even if you do pass the $600 threshold, chances are high the IRS won’t come looking for you.
However, this is not financial or legal advice so don’t quote me on that.
In general, any income you make needs to be reported to the government. Side hustles or not, it’s important to understand.
Why is this happening?
To combat a little thing known as inflation. You might’ve noticed it the last time you went to the grocery store and saw prices for bread skyrocketing like Bitcoin did last year.
Besides raising interest rates, collecting more on taxes is how the government plans to counter inflation due to all the money that was printed recently.
How should you prepare?
Don’t worry if you use Venmo or Cash App to send your roommate rent every month. That can be easily explained if the IRS audits decide to audit you. The real folks who need to prepare are side hustlers doing gigs for monetary gain.
The first thing I suggest you do is find a CPA. You don’t have to call around or anything like that. If you normally do your taxes on a site like TurboTax they have CPAs available. They can help you find easy tax deductions.
Next, you’ll have to start keeping detailed records of your expenses. This is also something you should’ve already been doing, but if you weren’t then start now.
What should you track?
- Business expenses
Keep track of anything and everything you might need to defend yourself shall the IRS come knocking.
Last, don’t try to get out of it. You’re not alone when it comes to this new tax rule. A lot of people out there were making extra money and weren’t reporting it to the government like they were supposed to.
Be honest, pay your taxes and research how to find tax breaks so you don’t have to pay as much. The IRS is cracking down on selling platforms like eBay.
This new tax rule isn’t the end of the world, it’s just the way the game goes. Freelancers and side hustlers looking for easy wins should check out these tax deductions to look for as a freelancer or a side hustler.
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