You may be wondering, if you use cash payment apps, is that taxable income?
There is a new tax policy that will impact you if you use third-party payment networks, like Venmo and Paypal, but it doesn’t take effect until next year.
The IRS and Treasury heard a number of concerns regarding the timeline and implementation of these changes and delayed them to help smooth the transition.
If you get a 1099-K form—the tax form for payment card and third-party network transactions, it might not be income.
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Using third-party payment services for personal use is not taxable revenue.
“If you go out with 10 or 12 people, you really don't want six or eight separate bills. So, I'll pick up the tab and you guys just Venmo me and we'll be fine. That is a personal transaction,” explained Enrolled Agent John Warren of Medford Tax Experts.
“Someone who conducts business activities, selling a product, collecting rents, providing services. So I might do tree work or gardening for my neighbors, and they pay me by Venmo,” said Warren, “That's compensation for my effort and my work...that's income.”
The Internal Revenue Service has delayed by one year a new tax policy that will impact people who use these third-party networks for business purposes.
The state requires entities like Paypal, Venmo, eBay, Amazon, Uber and Airbnb to report taxpayers who had more than $600 in collections.
The federal limit to issue a 1099-K is currently more than $20,000 of gross receipts and more than 200 transactions. Next year that limit will be $600.
Wondering if gifted and inherited property is income to be reported on a tax return? It’s not.
“Inheritances aren't taxed to the beneficiaries,” said Warren. “Right now, the current law in Massachusetts is when someone dies, if they have more than $1 million of wealth, there's a state wealth tax. But once that income property or the wealth is distributed to the beneficiaries, receiving it isn’t income. So inheritance are kind of like gifts. My grandmother gave me $5.00 for my birthday. I'm not going to report that as income."
You can give up to $15,000 to a person in a year before you have to report it and are subject to a gift tax.
For students, Massachusetts has a student loan interest deduction that is more liberal than the federal deduction. There is no income limit for the state deduction for undergraduate loans and married taxpayers filing separate returns can claim the state deduction.
And there’s a little boost for teachers this year!
“Massachusetts conformed to the 2005 federal tax code for over 15 years. And last year in the budget, the legislature upgraded the Massachusetts tax code to 2022,” said Warren. “So teachers who have been able to take a $250 adjustment for out-of-pocket expenses for classroom supplies on a federal return can now take a state deduction, which was adjusted for inflation, is an increase to $300 in 2022.”
There is also a change to home energy credit. The credit through 2022 had a lifetime cap of $500. For 2023 and the next 10 years, there is an annual cap of $1,200. If you are going to do a project like replacing all your windows, do a few every year for several years to maximize the tax credits.