Cashflow and Cash App, tax implications for your convenience #MoneyMondays
Just Cash App me is a common statement or expression of instruction made between friends, family members and business individuals when they want to send or receive money in today’s economy. But this Cash App, Zelle, and PayPal thing now has me apprehensive and cautious, ever since our fiends over at the Internal Revenue Service ( IRS) have gotten their claws into these transactions. With most of the year 2022 behind us, I believe there is still time for some to course correct when it comes to these transactions and reduce or eliminate any surprises next year.
What’s new in 2022
Starting January of this year, the IRS is requiring all of these digital transaction platforms, to provide individuals and business with an IRS Form called 1099-K for all account holders, whose account shows that at the end of 2022, they have received in excess $600.00 dollars. I am not going to get into the weeds of this change or new law, but will simply clarify some elements about the change.
First, it is not that you have received $600.00 or more from someone all at once which can make it reportable. It is the fact that from January through December of 2022, you may have received cumulatively, $600.00 or more, not related to personal activities but may be business related for goods or services provided.
Secondly, general tax law rule or for those of you interested in code sections, you need not consider any section more than section 61 which defines gross income. It literally defines gross income as money from any source. If you are unsure what the IRS means when they say from any source, look up United State v. Capone, as in Al Capone. The IRS defined gross income to include money earned from illegal or drug activity. But since they are equal opportunity appliers of the law, expenses incurred in carrying on drug or illegal activities are also deductible. They sure added a new definition to the commandment, “ thou shall not steal”. Did I say it defines gross income? Well, it also does defines gross income, by defining what gross income is not. Now that you have that all figured out, why does this matter?
Why Does it Matter:
Let’s start with the fact that this is a new law being implemented for the first time this year and nobody knows exactly how all this will play out. While this is a reporting change the impact is significant. Third party platforms are responsible for making determinations when it comes to issuing IRS Form 1099-K. Here is an example of one issue. If the third party platform is unable to distinguish the nature of the transaction between a personal transfer and a business transfer, they will most likely issue you IRS Form 1099-K. Therefore, if you do not have a side hustle or are getting reimbursed for some product or service, you might find yourself mistakenly receiving a 1099-K.
Another potential consequence would be where a person is an independent contractor being paid through Cash App. In that case, they will receive a 1099-K from the third party platform. However, the party who hired them is required to issue them IRS Form 1099 also in order to claim these expenses on their taxes. Potentially, one person could receive two IRS Forms 1099’s for the same service. And guess what? You the
Cash App recipient, will have to explain to the IRS, why or why it should not be included on your tax return. But this example could be extrapolated to include, roommates splitting up the rent payment or selling items on eBay for less than you paid for it.
The take away here is not that you should not use these platforms, but that for the remainder of this year pay attention to your digital receipts in this space. While convenient and easy, it could turn out to be a headache. Transactions which should be excluded may be included especially since the implementation is new, and all the pieces have not been quite figured out. As you know, the IRS always make mistakes in their favor!
WHAT’S UP! Today’s what’s up is about three reasons why cash offers in purchasing a home or property is attractive. The contingency of getting the buyer approved is removed. In other words, there is no 45-60 days waiting period . Secondly, removing the approval contingency means that you can get to closing in two weeks. Third, lenders require appraisals prior to approving the loan. With a cash deal, appraisals may not be required. Therefore, if you can offer a cash deal, you can move to the head of the line. And that’s what’s up!
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC . Give2Get Rich, LLC 2022. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.