With the growing popularity of virtual payment platforms like Venmo, Zelle, and Cashapp, uncertainty arises over whether the IRS will tax these transactions.
In this article, we'll explore whether money transfers are taxable and how you should report and pay the IRS for income generated through these apps.
Do money transfers pay taxes?
Yes, the IRS will tax transactions made through platforms like Venmo, Zelle, and Cashapp. Starting in 2023, you must report to the IRS only if your income from these virtual wallets exceeds $600 during a tax year.
If you are a merchant or receive your salary through these platforms, the IRS will tax these transactions. However, there are exceptions: not all money transfers are subject to tax. It is essential to understand the exceptions and tax implications to avoid problems with the IRS.
Tax exemptions on money transfers
There are specific situations in which income generated through these platforms does not require reporting to the IRS:
Sending money between friends and family
Payments received from friends or family for shared expenses, gifts, or other personal purposes should not be reported to the IRS.
Personal sales
Occasional sales of personal items through these platforms, as long as you do not have a business selling said items, are exempt from taxes. It is necessary to retain receipts and documentation to support these transactions.
It is essential to remember that income above $600 on these platforms must be reported. If you have any questions, it is advisable to seek professional advice to evaluate your specific situation.
How to stay up to date with your taxes in virtual transactions
To ensure you meet your tax obligations in 2023, follow these three steps:
1. Print a report of your transactions: Get an annual summary of your movements on Venmo, Zelle, Cashapp or other similar platforms. Check the accuracy of the information.
2. Categorize your transactions: Organize your transactions by business and personal categories. Use tools like spreadsheets to help you in this process.
3. Gather supporting documentation: Keep receipts and any other documents that support your transactions. This will be essential in case of IRS audits or verifications.
Remember, failure to pay taxes can lead to legal problems. It is always advisable to consult with a tax professional to prepare the necessary documentation and resolve your concerns.
Income declaration on virtual payment platforms
You must complete Form 1099-K to report payments received through payment processors such as Venmo, Zelle, or Cashapp to the IRS. This form includes information such as:
- Personal and identification data of the seller.
- Payment processor details.
- Total amount of payments received during the year.
Money transfers are subject to taxes, and you must declare your income from virtual payment platforms such as Venmo, Zelle and Cashapp. However, there are exemptions for certain transactions such as donations, personal sales, and money transfers between friends and family.
Make sure you have accurate reporting and supporting documentation, as income over $600 must be reported. Seeking professional advice can be essential to prepare your documentation and resolve your doubts.
It is always better to be informed and comply with tax obligations to avoid complications with the IRS.
At BeeTax, we are available to help you determine your tax obligations for the year 2023. You can contact us at the following numbers Charlotte 704 569-1911 Monroe 704 635-7566 or come to one of our offices, we are at 3721 Eastway Dr. Charlotte , NC 28205 and at 1503 E Franklin St. Monroe, NC 28112
