We spoke to local tax expert, Bill Clark, who explained more.
You know all those transactions we make using things like Zelle, PayPal, Cash App, and Venmo? Well, we better start keeping records of all those transactions because the IRS is going to start looking at those records and asking questions.
Clark has been helping people with their taxes for 35 years. He says when it comes to this new tax law, a lot of the transactions we make are not going to be taxable, but will be declared taxable unless we provide documentation to prove otherwise. So keep records of all your transactions using these payment methods.
“You are to report these transactions because that’s what the government is going to be looking at, is matching those things up to see if you’ve got them included in your tax returns,” he said.
“Two people are sharing an apartment. They split the rent. I pay the rent and you can pay me back with a Venmo or one of these other cards. I’m gonna get notified, or the government’s going to get notified of my transactions on those rental payments that I received.”
Clark offeres another example of how the new law will work.
Clark believes this is ultimately the government’s way of cracking down on tax cheats. The IRS says there are more than a trillion dollars in unpaid taxes. And keep in mind that even if you don’t report your transactions on these money transfer sites to the IRS, the companies will.
“Then they’re going to be required to withhold what’s called backup withholding which is, ‘we’re going to charge you another 24% and turn that over to the federal government to cover your taxes’,” Clark said.