You may get a 1099-K for Venmo, PayPal payments. Here's how to prepare — and shrink your tax bill

If you've accepted payments via apps specified arsenic Venmo oregon PayPal successful 2022, you whitethorn person Form 1099-K, which reports income from third-party networks, successful aboriginal 2023. But there's inactive clip to trim your taxation liability, according to fiscal experts. 

"There's nary alteration to the taxability of income," the IRS noted successful a release Tuesday about preparing for the upcoming taxation season. "All income, including from part-time work, broadside jobs oregon the merchantability of goods is inactive taxable," the bureau added.

Before 2022, you whitethorn person received a 1099-K if you had much than 200 transactions worthy an aggregate supra $20,000. But the American Rescue Plan Act of 2021 slashed the threshold to conscionable $600, and adjacent a azygous transaction tin trigger the form.

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While the alteration targets concern transactions, not idiosyncratic transfers, experts accidental it's imaginable immoderate taxpayers volition person 1099-Ks by mistake. If this happens, the IRS says to interaction the issuer oregon marque adjustments to your taxation return.

Either way, the IRS urges "early filers" to marque definite they person each taxation forms, including 1099-Ks, earlier submitting their return.

Whether you enactment with a nonrecreational oregon self-prepare taxes, you request to beryllium ready, said Albert Campo, a certified nationalist accountant and president of AJC Accounting Services successful Manalapan, New Jersey.

Here's what to cognize astir reporting 1099-K payments connected your instrumentality and however to trim your taxation liability.

You tin study 1099-K payments arsenic income connected Schedule C of your taxation return, which covers profits and losses for sole proprietor businesses.

You'll person the accidental to subtract expenses, known arsenic concern deductions, connected Part II of Schedule C, including things similar the costs of your products, the information of your net and telephone bills utilized for business, travel, perchance your home office and different expenses. 

Jim Guarino, a certified fiscal planner, CPA and managing manager astatine Baker Newman Noyes successful Woburn, Massachusetts, said it's bully to statesman reviewing imaginable concern deductions present — including gathering your receipts for each 1 — to get organized earlier taxation play kicks off.

If you're paying for your ain wellness insurance, there's besides a accidental to deduct the outgo of your premiums connected Schedule 1, which reduces your adjusted gross income, Guarino said. This won't use if an leader provides your wellness coverage.

Another mode to trim your taxation liability is by opening and contributing to a self-employed status plan, which is besides reported arsenic an "adjustment to income" connected Schedule 1. 

One enactment is simply a Solo 401(k), which covers 1 subordinate and their spouse, and allows worker deferrals, which are owed by Dec. 31, and leader contributions, which are owed by the taxation deadline.

"The cardinal portion is making definite that the paperwork oregon documents are established by the extremity of the year," Guarino said. If you're confused astir mounting up the program oregon however to cipher the leader contribution, it whitethorn beryllium astute to talk with a taxation professional, helium said. 

Of course, if you haven't maxed retired your workplace 401(k), it's imaginable there's inactive clip to boost contributions for your past 1 oregon 2 paychecks for 2022, but "time is of the essence," Guarino said.

Plus, you person until the taxation deadline for pretax idiosyncratic status relationship contributions, which whitethorn besides qualify for a deduction.  

When starting a business, taxation professionals accidental to debar "commingling" idiosyncratic and concern income and expenses by keeping them abstracted — and 1099-K net are nary exception.

Campo suggests opening different slope relationship and recognition paper and utilizing abstracted third-party outgo web accounts for concern transactions "to marque your beingness a batch easier."   

Here's why: If you person a 1099-K for $10,000, and lone $5,000 applies to your business, you'll request to amusement the different $5,000 was for idiosyncratic transfers done recordkeeping, helium said.

"It creates much onus connected the taxpayer," Campo said, noting that it's amended to support idiosyncratic and concern accounts abstracted due to the fact that "it's truly chopped and dried."

It's captious to prevention receipts for immoderate concern expenses you program to deduct connected Schedule C. In the lawsuit of an audit, the IRS won't judge recognition paper statements arsenic support, Campo warned. The bureau wants to spot copies of your receipts covering each concern expense.