Are you a freelancer or a gig worker in Washington? Those who work in this capacity know they have to keep good records of their income and expenses. If you receive payment via one of the convenient online apps, you’ll need to pay stricter attention to your income from those sources, beginning with the 2023 tax year.
How income reporting will change
Reporting requirements for apps like PayPal, Venmo, Zelle, and CashApp will change in 2023. It won’t affect the amount of money you owe to the Internal Revenue Service, but it will change the way those apps will report your income under the tax law. Current tax reporting only required small business owners and freelancers to report payments totaling at least $20,000 or if they had 200 separate transactions. Under the new rules, every action will require reporting. The changes will affect everyone as third-party payment platforms will issue additional forms for every transaction.
Many tax experts believe the new system will simplify reporting and lead to fewer errors for freelancers who may miss certain payments reported by those who have indicated their expenses. This situation results in a mismatching error for the IRS. The changes will ensure taxpayers receive proper refunds and the IRS will receive correct payments.
Start preparing now
Every small business and freelancer has unique tax preparation issues. If you already receive income via third-party platforms, you probably pay some of your expenses in this manner. Consider setting up a system on a spreadsheet that tracks your monthly income expenses on each app you use. Some apps like PayPal will even do the job for you and issue monthly and year-end reports at your request.
Even if your apps don’t provide a spreadsheet, gather your monthly summaries as the year progresses and pull them into a spreadsheet you create. This practice will help keep you better organized. Not only will you have a better idea of income, but you’ll also have a running record of expenses. You’ll be less likely to miss expenses, especially small ones that often slip through the cracks.