In the world of hard work and the gig economy, many of us resort to secondary, tertiary, or even quaternary jobs to earn some extra cash during uncertain times. Some people even take on these side jobs to find creativity, pursue a personal passion, or escape a bad work situation. If you’re receiving side income, you might be using a peer-to-peer platform like Venmo or PayPal to do so.
Can I use Venmo or PayPal for my business?
The short answer is yes, absolutely. However, it’s important to note that Venmo, PayPal, and many other payment processors charge fees on transactions for goods and services and report these payments to the IRS.
What do I need to know about reporting income?
If you’re using Venmo just to split the cost of dinner with a friend or to transfer money to your spouse to pay for half of the grocery bill, you don’t need to worry about taxing your transactions. But once you start using Venmo for payment transactions for goods and services, you’re responsible for reporting it to the IRS at tax time.
Do I need a separate business account?
“Like all freelancers, regardless of using a service like Venmo, you should set up a separate business account to help track your business income and expenses so you don’t miss anything at tax time”, according to Green Lewis. And yes, just as you should set up a separate bank account for your business, you should also ensure that you have a separate Venmo or PayPal account through which you conduct business-related transactions. Venmo offers a way to open a business Venmo account, as do other platforms, so this process should be relatively straightforward.
Should I also track my business expenses?
According to Green Lewis, the biggest mistake he sees is “not tracking and deducting business-related expenses that were paid through third-party apps, which can reduce your net income as a freelancer”. If you want to learn more about the deductions you might be able to take, TurboTax provides a tax deduction calculator for freelancers and influencers.
How can I find resources to help me?
If you still have questions about how to file taxes as a freelancer, the IRS has resources on their tax center page for freelancers. Venmo also has frequently asked questions about taxes for 2022 and an explanation of what to expect this tax season.
Once you’re ready to file your taxes, many online services can help you. For example, H&R Block has an online tax filing system for freelancers starting at $109.99. Meanwhile, TurboTax Self-Employed starts at $119 or $199 for the direct option, allowing you to connect with a tax expert who can assist you.
“TurboTax Self-Employed will look for industry-specific deductions so you can maximize your business deductions and save on taxes”, according to Green Lewis. And the best part about saving on taxes? The system asks you specific questions about your business, puts your information in the correct forms, and guides you through entering information from Form 1099-NEC and Form 1099-K, meaning you don’t need to know anything about taxes or forms.
And if you have a side business keeping you busy, saving time, money, and mental energy on your taxes is definitely worth the effort.
Source: https://www.realsimple.com/work-life/money/how-venmo-paypal-affect-taxes
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