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URGENT: $600 IRS Rule Changes Everything This Year!
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The $600 tax rule change is the IRS reporting requirements for third-party payment platforms like Venmo, PayPal, and Cash App. This change affects how transactions for goods and services are reported to the IRS, and it came into effect starting in 2024. Here's a breakdown of what this means and how it might impact you:
What is the $600 Rule?
Starting in 2024, third-party payment processors (like PayPal, Venmo, Cash App, and others) are required to report transactions to the IRS if the total amount of payments for goods and services exceeds $600 during a calendar year. This is a major change from the previous threshold of $20,000 in payments and 200 transactions. Now, even if you only make one transaction worth over $600, the payment processor will send you a Form 1099-K and report the income to the IRS.
Why Did the Rule Change?
The change was part of the American Rescue Plan Act of 2021, which aimed to improve tax compliance by increasing transparency in how individuals and businesses receive payments for goods and services. The idea is to ensure that income earned through platforms like PayPal and Venmo is accurately reported and taxed, especially for people using these platforms to conduct business or side gigs.
What Does This Mean for You?
Small Business Owners, Side Hustlers, and Freelancers:
If you’re running a small business, freelancing, or engaging in side gigs and you receive payments for goods and services via third-party payment platforms (Venmo, PayPal, etc.), this rule could affect you.
If you earn more than $600 in a year, these platforms will report the income to the IRS, and you’ll likely receive a Form 1099-K showing the total amount you’ve received.
You must report this income when filing your taxes, even if the income was for personal items or services you sold occasionally (not just for businesses).
Casual Sellers:
If you’re simply selling personal items occasionally (like selling clothes on eBay, selling furniture on Facebook Marketplace, etc.), and you don’t make a profit, this rule could still affect you. If you cross the $600 threshold in payments for goods or services, those transactions will be reported to the IRS, even though you may not owe taxes on them if they are personal sales.
Keep in mind, you won't be taxed on the sale of personal items at a loss. However, if you sell items at a gain (i.e., for more than you paid for them), you may need to report it as taxable income.
Gift and Personal Payments:
The rule applies to payments for goods and services, not personal payments or gifts. For example, if a family member sends you money for a birthday gift via PayPal, that wouldn't be reported. However, if they pay you for a service (like babysitting or a personal project), that could be considered income and reported to the IRS if it exceeds the $600 threshold.
What’s Not Affected:
Friends and family transactions for gifts, splitting bills, or reimbursements are not subject to this rule. It’s only payments for goods and services that count. The distinction can sometimes be blurry, especially if you're running a small business and accept payments for personal items, but it’s crucial to keep track of how payments are categorized.
In short, this $600 rule change means more oversight and potential tax obligations for those receiving payments for goods and services through third-party apps. Whether you're selling items occasionally or running a business, it’s crucial to stay aware of this rule and report your income properly.
Brought to you by:
Jerry Pinkas Real Estate Experts
604 N 27th Ave
Myrtle Beach, SC 29577
843-839-9870
Disclaimer: All information given in my videos is meant to be educational. This video is not intended to replace your research or provide legal, investment, or financial advice. For legal advice, consult a lawyer.
What is the $600 Rule?
Starting in 2024, third-party payment processors (like PayPal, Venmo, Cash App, and others) are required to report transactions to the IRS if the total amount of payments for goods and services exceeds $600 during a calendar year. This is a major change from the previous threshold of $20,000 in payments and 200 transactions. Now, even if you only make one transaction worth over $600, the payment processor will send you a Form 1099-K and report the income to the IRS.
Why Did the Rule Change?
The change was part of the American Rescue Plan Act of 2021, which aimed to improve tax compliance by increasing transparency in how individuals and businesses receive payments for goods and services. The idea is to ensure that income earned through platforms like PayPal and Venmo is accurately reported and taxed, especially for people using these platforms to conduct business or side gigs.
What Does This Mean for You?
Small Business Owners, Side Hustlers, and Freelancers:
If you’re running a small business, freelancing, or engaging in side gigs and you receive payments for goods and services via third-party payment platforms (Venmo, PayPal, etc.), this rule could affect you.
If you earn more than $600 in a year, these platforms will report the income to the IRS, and you’ll likely receive a Form 1099-K showing the total amount you’ve received.
You must report this income when filing your taxes, even if the income was for personal items or services you sold occasionally (not just for businesses).
Casual Sellers:
If you’re simply selling personal items occasionally (like selling clothes on eBay, selling furniture on Facebook Marketplace, etc.), and you don’t make a profit, this rule could still affect you. If you cross the $600 threshold in payments for goods or services, those transactions will be reported to the IRS, even though you may not owe taxes on them if they are personal sales.
Keep in mind, you won't be taxed on the sale of personal items at a loss. However, if you sell items at a gain (i.e., for more than you paid for them), you may need to report it as taxable income.
Gift and Personal Payments:
The rule applies to payments for goods and services, not personal payments or gifts. For example, if a family member sends you money for a birthday gift via PayPal, that wouldn't be reported. However, if they pay you for a service (like babysitting or a personal project), that could be considered income and reported to the IRS if it exceeds the $600 threshold.
What’s Not Affected:
Friends and family transactions for gifts, splitting bills, or reimbursements are not subject to this rule. It’s only payments for goods and services that count. The distinction can sometimes be blurry, especially if you're running a small business and accept payments for personal items, but it’s crucial to keep track of how payments are categorized.
In short, this $600 rule change means more oversight and potential tax obligations for those receiving payments for goods and services through third-party apps. Whether you're selling items occasionally or running a business, it’s crucial to stay aware of this rule and report your income properly.
Brought to you by:
Jerry Pinkas Real Estate Experts
604 N 27th Ave
Myrtle Beach, SC 29577
843-839-9870
Disclaimer: All information given in my videos is meant to be educational. This video is not intended to replace your research or provide legal, investment, or financial advice. For legal advice, consult a lawyer.
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