Many who are self-employed or have a “side-hustle” take electronic payments through apps such as Venmo, PayPal, and CashApp. If you haven’t previously heard, the IRS has rolled out new reporting requirements for these third-party payment processing apps. While the reporting may cause your tax bill to increase, there are some tips and tricks you can you to try and decrease your tax liability!
How To
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. Those who do side jobs typically have a lot of expenses that can be used to reduce their tax burden. Some of these expenses that can be deductible are as follows:
Car Payments, Mileage, and Gas
Those who use their car for work can deduct some or all of your associated expenses dependent upon how the vehicle is used. The IRS states that if you use your car only for business purposes, you can deduct its entire cost of ownership and operation, with some limits on this. However, if you use the car for both business and personal purposes, you may only deduct the costs associated with business use.
The majority of people use their cars for both business and personal, so it is important to keep a record of your mileage. To do this, you can use a wide range of different mileage tracking apps to keep an accurate account of your miles.
Home Office Expenses
Another deduction that you can take advantage of this tax season relates to home office expenses. This only applies to those who are self-employed, meaning that those who receive a paycheck or W-2 exclusively from an employer are not eligible for the deduction even if working from home.
The IRS states, “If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area. You need to figure out the percentage of your home devoted to your business activities, utilities, repairs, and depreciation.” There are a decent amount of requirements that need to be met to claim this deduction, so it may be a good idea to consult with your tax professional to assist with claiming this deduction.
Additionally, you may also be able to claim part of the deduction, which will likely be commonly seen this year. A common cause of this would be an employee quitting their 9-5 job, starting their own business, and using their home as their primary office.
Electronics and Office Supplies
Your phone, computer, internet, software, and even some technology products could be possible tax deductions. These would only be applicable deductions if they are used to run your business. Aside from these charges, you may also be able to deduct the purchase of office supplies, postage, etc… no matter if you work from home or not!
Wrap Up
It is important to keep clear records of the expenses you are trying to deduct and the income you have received. Even with clear and concise records, it will still likely be a challenge to claim all of these deductions, which is why we so strongly recommend you consult with your tax professional.
Looking for assistance on claiming these deductions? Feel free to give us a call at 516-541-6549. And don’t forget to visit our website for more news updates!