all right very important update so starting january 1st 2022 if you sell
anything whether it's offline or online and you are receiving payments totaling more than 600
through your cash app your vimo your paypal apple pay or even your zelle account then you're likely
gonna have to pay some taxes on it because in the hundreds of pages of the american rescue plan act
there was a tax provision that lowered the federal threshold for issuing the 1099 k form
to 600 which basically means that whether you are occasionally selling something that you own
or you're actually operating a business if you sold more than 600 worth of goods or services
then the irs wants to see you at tax time so in this brief episode i'm going to give you
all the details and let you in on how the irs will know about any of these payments
that happen on these third-party apps so be sure to like this video while the intro plays
hey there and welcome to our channel i'm sean with life accounting the accounting company that saves
people from high taxes and low profits okay let's go ahead and answer a few questions number one
what did the american rescue plan act change as it relates to income reporting so currently and
this is for the 2020 and 2021 tax year the rule is that if you sell goods or services
through an app like paypal then you generally will only receive a tax form the 1099k form if you have
at least 200 transactions totaling more than 20 thousand dollars which makes it pretty obvious
that you are actually doing legitimate business at that rate but as i mentioned earlier things have
changed and for the 2022 tax year you may receive a 1099 k form on anything you sell over
six hundred dollars with no minimum transaction levels which is a pretty significant change in an
increase of nineteen thousand and four hundred dollars which is a big big move right now i
want to hear from you comment below what you think about this and while you're at it don't forget to
like this video if you enjoy updates like this one now here's my take lately when new laws pass that
headlines that we see on the news are typically around stimulus checks tax credits like the child
tax credits and grants loans etc but the government is primarily funded by tax dollars
and when all these new enhanced benefits come into play then really we are the ones that are paying
for it and it's moves like this one lowering the federal thresholds that help the government cover
all the bills now of course this isn't a political video but i know the biden administration focused
on taxing the rich but this is definitely a tax provision that is targeted at everyone okay so
question number two does this mean your taxes will increase well if you get a 1099k form you should
definitely report it on your taxes but that does not mean you're going to actually pay more taxes
on that income remember paying taxes comes down to your total taxable income so you have to take
a look at what tax bracket you fall into after the standard or itemized deductions that you have
for example if you're single and your only source of income was a side hustle or some type of side
business that made let's say 10 000 then you wouldn't have to pay any taxes on that because
you don't fall into a tax bracket after you take the standard deduction and the math on that is
actually very simple you have ten thousand dollar income minus a twelve thousand five hundred and
fifty dollar standard deduction which makes a zero taxable income all right question number three how
does the irs know about your cash app or even your cash transactions so i already sent this update to
a few people and the first question i got was how does the irs know what's in my cash up and how do
they know that it's actually income and it's not like a donation or a gift that i gave someone
so i want to let you in on two ways the irs can find out that what you have is actually income
of course the first way number one is pretty obvious right is through that 1099k form that form
is sent to you and to the irs so they will have record of any income that you receive through that
1099k the second way is not so obvious okay so let me explain your income is someone else's deduction
right just like your deduction is usually someone else's income so let's break this down a little
bit more so for example if you receive a payment in the form of cash you may be thinking there is
no way the irs can actually track that but if the person you paid is trying to reduce their taxable
income then they will likely and they should write off the money that they pay you which gives the
irs something to track right like this person took a deduction that deduction is your income
or your income is someone else's deduction so of course you never want to be investigated for tax
evasion and end up going to jail over illegal tax strategies now we have some videos coming up next
that talks a little bit more about tax evasion tax avoidance and other things the irs wants to
take control over so make sure you check out those videos coming up next and i'll see you over there