How to Do Taxes With Cash Apps

Paying without cash is nothing new. In fact, according to historical evidence, the barter system got introduced by the Mesopotamians some eight thousand years ago. In 1959, the Diner’s Club debuted the universal credit card, and thirty-five years later, Stanford Federal Credit Union became the first bank to offer online transactions. However, today, when the term cashless transaction gets used, most associate it with paying via phone through software popularly labeled as cash apps.

Smartphone payment apps are a hot trend virtually everywhere. Sweden is a country that has gone all-in on this tech transaction revolution, as they have reduced the percentage of physical money in circulation by 50% in the past decade. Expectations are that this Scandinavian nation will go entirely cashless by 2023. And North America is keeping pace in the race of saying bye-bye to physical money, as projections are now that cash will only make up 8.7% of all point-of-sale transactions in 2024 in Canada and the US.

The top reasons why many opt to use software like Cash App, Venmo, PayPal, Zelle, and other smartphone options online and offline is because they are fast, convenient, super safe, and can yield loyalty rewards. Nevertheless, an aspect of these apps some users should not neglect in 2022 is that income of over $600 attained on them through freelancing, playing cash app games, or any other possible method is taxable. That is per a new IRS rule change that came into force on January 1st, 2022.

What You Need to Know About Cash App Tax Reporting

Before the 2022 tax reporting requirement got implemented (thanks to the American Rescue Plan Act of 2021), under the prior law, the IRS demanded that third-party payment networks issue the 1099-K document to individuals who complete more than one hundred transactions in a calendar year. And to those whose gross payments exceeded $20,000.

Now, you will get a Form 1099-K when conducting money transfers (paying for services and goods) of over $600, without any needed minimum transactions. So, if you go over this transfer threshold, expect to do the following to be in line with the new tax obligation:

  1. After passing the discussed limit ($600), your cash app service will supply you with a 1099-K Form.
  2. A 1099-K is an information return that you must fill and submit to the IRS. It can aid you in calculating how much business income you have received. Knowing that receiving a 1099-K Form does not necessarily mean you owe the government money. You may have tax deductions that can offset some of your business income, and not all the transactions on your 1099-K Form may be business-related.
  3. Even if you do not receive a Form 1099-K, you should report any taxable income obtained through cash app transactions on your return. The novel requirement only exists to ensure that all cash app income gets reported. It does not add a new tax.
  4. If the IRS does not have your EIN, Employer Identification Number, ITIN, Individual Tax Identification Number, or SSN, Social Security Number on file, you will get asked to provide these.
  5. You must include all online and credit card payments on your 1099-K Form. In Box 1a, you must report your annual total gross income without any discounts, adjustments, or refunds.

Examples of received funds that get excluded from income reporting are:

· Gifted money.

· Money got from a roommate for payment of a rent share.

· Money received from friends and family as a reimbursement.

· You should not report money obtained by selling a personal item at a loss.

· Transactions for another person or business using a shared credit card terminal.

You must practice good record-keeping if you run a small business that accepts cash app payments. Your system should include:

· Bank statements.

· Accounting and payroll records.

· Tax forms and returns.

· Receipts.

· Other financial records.

If you are not a business owner, having distinct third-party payment accounts for your personal and business transactions is wise.

You Can Calculate Taxes in Cash Apps

Millions of Americans spend money on DIY tax software or professional services every year to help them not get in trouble with the IRS. Yet, cash apps have now made calculating federal and state tax returns a breeze and free. Inside the software.

They do this by:

· Providing help with 1040 schedules. That is the form taxpayers use to file their annual income tax returns. It now has new schedules that even seasoned taxpayers find confusing.

· They assist in comparing standard deduction to itemization. These apps walk you through the available deductions.

· You can import past 1040 filings inside the software for better record-keeping.

· They allow you to file your taxes for free.

This article was written in collaboration with iGaming analysts from OUSC.