New rules taxing businesses using PayPal, Venmo in 2022

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EYEWITNESS NEWS (WBRE/WYOU) — There’s a big change to the tax code on January 1st and if you have a side business for extra money, you’d better pay attention.

It has to do with the amount of money you can earn without Uncle Sam getting a piece. That amount is about to get a lot smaller.

We saw a lot of people pick up side hustles, and launch small businesses to earn extra cash or keep them afloat during the pandemic. But whether you’ve started an Etsy shop, DJ at weddings, or do handy work and you accept payments through PayPal, Venmo or Cash App, you’ll need to account for those earnings on your tax return.

Beginning January 1st, the American Rescue Plan will require third-party applications like Venmo and PayPal to report commercial transactions for the sale of goods or services over $600. In the past, those transactions were only reported if they amounted to more than $20,000.

“The threshold for reporting third-party transactions has been lowered to $600. It’s for someone who is either in a trader business or is exchanging merchandise in the hopes of making a profit,” Kronick Kalada Berdy & Co. director Bill Lazor said.

What does it mean for local business owners? Spencer Rappaport is the senior engineer and owner of Evolutionary Computers in Kingston. He does everything from cell phone and laptop repairs to I.T. services for other businesses.

Like many small business owners, Rappaport accepts payments through PayPal, Venmo and Cash App. He sees this change hurting small businesses in the long run.

“You have to tax on it so you have to tax your clients if you’re being paid by that. There’s no benefit to it really. It’s a detriment in a way,” Rappaport said.

Rappaport says this will make it harder for people to get their business off the ground.

“This is going to destroy gig workers, side workers, people who are just trying to make a couple bucks. It’s going to make it so now there’s more taxes than there are profit so it’s going to destroy small business or anybody starting up,” Rappaport said.

Lazor says this is just tightening up existing rules to help close the tax gap.

“This is really going to affect small sellers, small businesses to make sure that their income which they’re reporting on their income tax return coincides with payments that are processed by a third-party payment organization,” Lazor said.

Lazor says business owners need to be vigilant when it comes to keeping track of transactions and expenses. This change is estimated to generate billions in new taxes over the next 10 years as making money “under the table” may soon be a thing of the past.

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