What Classifies as Taxable Income Regarding Online Revenue?
Do you ever wonder exactly what classifies as taxable income regarding online revenue? If you’re a U.S. citizen making money from the sale of goods or services, the IRS considers it taxable income regardless of how or where you’re paid. But some sellers have tried to fly under the feds’ radar by taking payments through an online app, such as PayPal or Venmo, then not reporting them on their tax return.
2023 will paint a much clearer picture for the IRS when it comes to revenue that people have been collecting online. Payment apps, online marketplaces and gig economy companies such as Airbnb are now required to report even relatively modest amounts that users collect for the sale of goods or services
Prior to the new rule, the companies had to submit reports only for users with at least 200 transactions and at least $20,000 in revenue in a given year. Effective Jan. 1, the new threshold is one or more transactions that collectively raise at least $600 in revenue.
There’s absolutely nothing new about the duty to pay taxes on income from sales or services. As the IRS explains in Publication 525, the obligation extends even to profits from the sale of personal items or hobby collectibles. For example, if you buy a rare coin for $5 at a yard sale and then sell it for $300, you owe taxes on the $295 you cleared. The catch is that you can’t deduct losses on such sales, so if you paid $300 for the coin and then sold it for $5, you can’t write off the $295 you forfeited.
The takeaway regarding what classifies as taxable income when it comes to collecting money online is that if you profit more than $600 in revenue, this income is taxable. The major difference now is that PayPal, Airbnb and other third-party settlement organizations will be sending far more Form 1099-Ks to the IRS and to their customers. The forms for 2022 are due to go out in January 2023. At North Bethesda CPA, we are committed to keeping our clients in the know and in compliance with the tax laws. Contact us here and connect with us on Facebook and Instagram.
