Imagine cousin broke called you while you were at work, and wanted to borrow some money due to an emergency, but you forgot your checkbook at home. How do you respond? Well, I know some of you are asking what a checkbook is, or who even uses that anymore! That’s exactly my point, because if you decide to lend her the money, one of the main questions will be, how can I get the money to you; do you have Cash App, PayPal or Venmo? She answers yes. You then get on your smart phone, transfer the money using Cash App, and think nothing more of the transaction except about the repayment date from Cousin Broke.
Most of us think that our Cash App transactions are safe, or even a secret. Well Surprise! Surprise! Under a new law, starting January 1st, 2022, the Internal Revenue Service (IRS) will require applications like Cash App, Venmo, Zelle and Paypal to report aggregate transactions of $600 or more to them. So, what is the rule and how does it work?
New Old Rule:
Section 61 of the Internal Revenue Code (IRC) long ago established IRS that income should be reported and possibly taxed. If I tried to explain the scope to that rule, it would take another several Money Mondays to scratch the surface. But just to provide context, according to the IRS, even if you earned money from the sale of illegal drugs, you are required to report that as income and pay taxes. That said, there is also the rule of if you paid someone at least $600 or more for services you are required to provide them with IRS Form 1099 and notify the IRS accordingly.
Earlier this year, Congress passed The American Rescue Plan which includes a new law that requires apps like Venmo and Cash App to report payments of $600 or more to the IRS. Starting on January 1st, 2022, your Cash App transactions may no longer be secret. According to the IRS, this new rule is only applicable to your business and not personal transactions. Personal transfer between you and your spouse or children should be excluded from being reported to the IRS. The new rule will mean that Cash App, Venmo and others will be sending you an IRS Form known as a 1099K, to facilitate reporting all of those business transactions along with sending a copy to the IRS. That said, do you honestly believe that some of your personal Cash App transaction will not be questioned if you are audited by the IRS? Secret! I don’t think so!
Most people will continue to use these apps due to their ease and convenience of receiving and sending money. What could you do to protect yourself from the new law? For starters, if you have a side hustle or are self-employed, you might want to consider establishing a separate business Cash App. After all, it would be pretty difficult explaining to the IRS which Venmo transactions are businesses and which are not. I mean, you could retain one account, but remember the IRS has three years in which to audit your tax return. Are you really going to remember and document every transaction from the last three years! I would suggest even if you do not have a business, consider establishing a separate cash app for non-family, friends and other transactions. Why? If you’re from the Caribbean or not and decided to run a local cultural saving program called “ sou-sou” using Cash App, and get audited by the state or IRS, can you really explain it’s not taxable income or get around receiving IRS Form 1099k?
The other recommendation I have for you to make a habit of describing the purpose or reason why you are sending or receiving cash in the memo section of the Cash App. The more details you have written down at the time of the transaction, the easier your life will be if you ever get audited by the state or IRS.
By the way, let’s be clear on the rule. If you receive less than $600 from someone for services performed as compensation and they fail to give you IRS Form 1099, you are still responsible for reporting that money as income. Similarly if you pay someone less than $600 for services rendered and fail to provide them IRS Form 1099, you may be denied that deduction or expense if audited. Let’s just say with this new rule, if you were in the shadows using Zelle, Cash App, Venmo and other platforms while not reporting those amounts as income, you’re now about to be exposed!
Today’s what’s up is about your cell phones. Starting as early as January 2022, one of the big four cell phone carriers will have shut down providing service to 3G cell phone. The shutdown is already underway and will be completed next year. These services will not only impact the big four but other prepaid carriers such as Straight talk, Boost and Cricket. In some cases 4G phones may also be affected meaning, you will not be able to enjoy text and data services along with phone calls. AT&T shutdown services for 3G phones are -February 2022; Sprint-January 2022; T-Mobile-July 1st, 2022 and Verizon-December 31, 2022. Perhaps a cell phone holiday gift for your parents or grandparents would be appropriate . And that’s what’s up!