If you use third-party payment platforms, like PayPal, Venmo or Cash App, to collect payments for your side gig or business, the Internal Revenue Service (IRS) wants to remind you to report payments of at least $600.
This rule is aimed at individuals who run a side hustle, small business or do part-time work. So if you're just sending money to friends for a restaurant bill or a vacation, or collecting a one-time payment for selling something online, this won't apply to you.
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Before 2022, third-party transactions for business owners and side hustlers followed different thresholds: individuals needed to report gross payments exceeding $20,000 and report earnings if they had more than 200 such transactions, according to the IRS. But as a result of the American Rescue Plan Act, any transactions made after March 11, 2021 that exceed $600 must be reported to the IRS, regardless of how many of those transactions you've had.
These earnings were already taxable so this is not a change in tax law, but rather just a reporting change.
In order to report these earnings and transactions, you'll need to file Form 1099-K. According to the IRS, you should receive this form from each third-party payment platform you received transactions through. If you incorrectly receive the form for personal transactions, the IRS recommends you contact the payment platform for a correction or to attach an explanation to your tax return.
How to prepare to file taxes as a business owner
Tax season already feels daunting for individuals, but if you're a business owner — and a new business owner at that — it can feel even more stressful. If you anticipate filing Form 1099-K for this year, make sure you keep an up-to-date record of your transactions, balance sheet and other financial documents. Otherwise, inaccuracies when filing could trigger an IRS audit.
It also helps to work with a professional bookkeeper or accountant who can help you get organized and make sense of your tax liability so you don't feel blindsided at the last minute. If you need to hire a professional, consider using a business credit card, like the Ink Business Unlimited® Credit Card or The American Express Blue Business Cash™ Card, so you can get rewarded for the business expense. The Ink Business card lets you earn 1.5% cash back on all business-related expenses and the Blue Business Cash card gives you 2% cash back on eligible business purchases.
Ink Business Unlimited® Credit Card
Rewards
Earn 1.5% cash back on every purchase made for your business
Welcome bonus
Earn $750 bonus cash back after you spend $6,000 on purchases in the first 3 months from account opening
Annual fee
$0
Intro APR
0% for the first 12 months from account opening on purchases; N/A for balance transfers
Regular APR
18.49% - 24.49% variable
Balance transfer fee
Either $5 or 5% of the amount of each transfer, whichever is greater
Foreign transaction fee
3%
Credit needed
Good/Excellent
Terms apply.
The American Express Blue Business Cash™ Card
Rewards
Earn 2% cash back on all eligible purchases on up to $50,000 per calendar year, then 1% cash back earned is automatically credited to your statement
Welcome bonus
Earn a $250 statement credit after you make $3,000 in purchases on your Card in your first 3 months.
Annual fee
$0
Intro APR
0% for 12 months on purchases from date of account opening
Regular APR
18.49% - 26.49% variable; APRs will not exceed 29.99%
Balance transfer fee
Foreign transaction fee
2.7%
Credit needed
Excellent
See rates and fees, terms apply.
Select ranked TurboTax Premium and H&R Block Self-Employed as some of the best tax filing software programs for small business owners due to their range of features, including reasonable costs, user experience and expert tax assistance.
TurboTax Premium
Cost
Costs may vary depending on the plan selected - see breakdown by plan in the description below
Mobile app
Yes
Live support
Yes, costs extra
Terms apply.
Pros
- Step-by-step guidance with a Q&A format that is easy to follow
- TurboTax Premium Live provides on-demand advice and a final review from a tax expert or CPA
- Live Full Service has a tax expert prepare, sign, and file your return
- Accuracy and maximum refund guaranteed*
- Audit support, which provides free assistance if you get an IRS or other tax notice
Cons
- More costly than other software programs
- Live expert assistance plans have additional costs
Cost breakdown by plan:
- TurboTax Premium: $129, state additional
- TurboTax Premium Live: $219, state additional
- TurboTax Live Full Service: Starting at $129, state additional
*Click here for TurboTax offer details and disclosures
H&R Block
Cost
Costs may vary depending on the plan selected (Free Online, Deluxe, Premium, or Self-Employed) - click "Learn More" for details
Free version
Yes (for simple returns only)
Mobile app
Yes
Live support
Available with some pricing and filing options
Terms apply.
Pros
- Simple step-by-step guidance that's easy to follow
- Unlimited on-demand chat or video support with Online Assist plans
- Ability to speak to a tax expert who has an average of 10 years experience (costs extra)
- Over 11,000 physical locations so you can meet with a tax expert in-person
- Maximum refund guarantee, or H&R Block will refund the plan fees you paid
- Audit support guarantee, which provides free assistance if you get an IRS or other tax notice
- 100% accuracy, or H&R Block will reimburse you for any penalties or interest up to $10,000
Cons
- Plans that include speaking with a live tax expert cost more for federal returns
- One of the more costly software programs
Lastly, for more information about Form 1099-K, check out the IRS's frequently asked questions page.
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For rates and fees of The American Express Blue Business Cash™ Card, click here.
