If you are self-employed or have a side hustle and accept payments through a third-party payment processor such as Venmo, PayPal, Zelle, or Cash App you may have heard about a new tax reporting requirement.
A provision in the American Rescue Plan that went into effect at the beginning of this year, directs third-party payment processers like Venmo to report transactions received for goods or services totaling over $600 per year to the IRS on a form called a 1099-K.
The change is a new reporting rule, not a new tax, meaning you won’t be taxed on all of your Venmo transactions when you file your 2022 taxes, says Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax. Personal transfers won’t be taxed.
Any income you earn through a peer-to-peer cash app is taxable, but you may be able to claim deductions on your tax return to reduce the amount of tax you owe, Green-Lewis explains. “People that do side jobs have a lot of expenses that can reduce their tax burden.”
The process is straightforward, says Howard Samuels, a certified public accountant at Samuels & Associates in Florham Park, New Jersey. “Save the receipt for all of your work-related expenses and fill out a Schedule C form on your tax return,” he says. “Then you would show the IRS, ‘Hey, I collected $500 in profits, I paid $400 for supplies, therefore my profits will be $100.” This way, he says, you only pay federal income tax on the $100 profit.
Aside from supplies, there are a number of other common expenses you can use to reduce your tax burden.
Here are three expenses you may be able to deduct or write-off when filing your taxes.
1. Car payments, mileage, and gas
“If you use your car for work, you can deduct car expenses to offset your income tax,” Samuels says.
According to the IRS, “If you use your car only for business purposes, you may deduct its entire cost of ownership and operation (subject to limits). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.”
Many people use their car for business and personal travel, so it’s important to keep a record of your mileage, Samuels explains. “There are several apps that are out there that you can actually download and when you get in the car you hit the app to track your miles. Then you put in a memo for the business portion of a record,” he says.
2. Home office expenses
“Another big deduction self-employed or side hustlers can …….