If you’re self-employed or have a side hustle and accept payments through a third-party payment processor such as Venmo, PayPal, Zelle, or Cash App, you may have heard of a new tax reporting requirement.
A provision of the U.S. bailout that went into effect earlier this year requires third-party payment processors like Venmo to report transactions received for goods or services totaling more than $600 a year to the IRS on a form called 1099-K.
The change is a new reporting rule, not a new tax, which means you won’t be taxed on all of your Venmo transactions when you file your 2022 taxes, says Lisa Greene-Lewis, CPA and tax expert at TurboTax. . Personal transfers will not be taxed.
Any income you earn through a peer-to-peer cash app is taxable, but you may be able to claim deductions on your tax return to reduce the amount of tax you owe, Green-Lewis says. “People who do odd jobs have a lot of expenses that can reduce their tax burden.”
The process is simple, says Howard Samuels, a certified public accountant at Samuels & Associates in Florham Park, New Jersey. “Keep receipt of all your work-related expenses and complete a Schedule C form on your tax return,” he says. “Then you would show the IRS, ‘Hey, I collected $500 in profit, I paid $400 for supplies, so my profit will be $100.’ That way, he says, you only pay federal income tax on the $100 profit.
Besides supplies, there are a number of other common expenses you can use to reduce your tax burden.
Here are three expenses you may be able to deduct or write off on your tax return.
1. Car, mileage and gas payments
“If you use your car for work, you can deduct car expenses to offset your income tax,” Samuels says.
According to the IRS, “If you use your car solely for business purposes, you can deduct the full cost of owning and operating it (subject to limits). However, if you use the car for business and personal, you can only deduct the cost of its business use.
Many people use their cars for business and personal travel, so it’s important to keep track of your mileage, says Samuels. “There are several apps you can download and when you get in the car you tap on the app to track your miles. Then you insert a note for the business part of a record,” he says.
2. Home office expenses
“Another significant deduction that self-employed or secondary scammers can take is the home office deduction,” Samuels said.
However, this only applies to people who are self-employed. “Employees who receive a paycheck or W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home,” the IRS said in a September 2020 reminder on the home office deduction.
According to the IRS, “If you use part of your home exclusively and regularly to conduct business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation. for that area. You need to figure out what percentage of your home is spent on business, utilities, repairs, and depreciation.”
There are a number of requirements that must be met in order to claim this deduction, so it may be worth seeking the help of a tax professional, Samuels says.
Video by Stephen Parkhurst
To benefit from the head office deduction, taxpayers must exclusively and regularly use part of their home or property as their main place of business. It can be a place where you meet customers, conduct business, store inventory, or rent out.
Apartments, mobile homes, and boats may also be eligible spaces under the IRS.
It is also possible to take only part of the deduction. For example, if you quit a 9-to-5 job, started your own business, and used your home as your primary office space, you may be able to claim the deduction for part of the year, the accountant says. Sheneya Wilson, the founder and CEO of Fola Financial.
3. Electronics and office supplies
Your computer, cell phone, Internet, software, and even some tech products are possible tax deductions if you have to use them to run your business, Green-Lewis says.
In addition to Internet and cell service charges, these deductions can cover the purchase of office supplies, postage, computers, printers, and any other common and necessary equipment you need to run an office, whether whether you work from home or not.
Keep clear track of your expenses
It’s important to keep excellent records of your income, mileage, supplies, and any other deductions you can use to reduce your tax burden, Wilson says.
“To make your life easier, create a personal or peer-to-peer cash Venmo app account, and a separate account for businesses,” says Wilson.
If you haven’t separated your personal and business accounts, you’re going to have a lot of work to do, Wilson says. If every transaction is mixed up, “it will involve taxpayers using their accountants or themselves, contacting the IRS to let them know what’s going on, and then dissecting the income report to reflect only the business transactions,” says -she.
In addition to segregating your business income, “you’ll also need to show proof to take any deductions, like home office deductions, mileage deductions, etc.,” Wilson says. “So keep all your receipts. Especially since the year has just started, you still have time.”
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