Announcer:
It is time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate Kreinbrink, joined this morning by Andy Ferguson, NelsonCorp Tax Solutions, third Wednesday of August. The summer I think is-
Andy Fergurson:
It’s blown by.
Nate Kreinbrink:
It’s blown by.
Andy Fergurson:
School starts next week.
Nate Kreinbrink:
Yeah, a week from now I think all the local schools on this side of the river I know for sure are back in as far as having the first-
Andy Fergurson:
Yeah, I think Illinois might already be going to school.
Nate Kreinbrink:
… going to do with it.
Andy Fergurson:
I feel like it’s been a long time since you and I have been here too.
Nate Kreinbrink:
It has been.
Andy Fergurson:
I feel like the people haven’t been getting what they need.
Nate Kreinbrink:
Well, we had Mike Van Zuiden fill in. I think he was on two weeks in a row, I believe, talking a little bit of taxes.
Andy Fergurson:
Yeah, he and I came up.
Nate Kreinbrink:
And he filled in for a week. We were out town there last week in July to kind of do that.
Andy Fergurson:
Yeah, he and I came up and probably everybody will be glad that you’re back. So we got to talk a lot of taxes, and Mike and I were excited. Everybody else probably fell asleep.
Nate Kreinbrink:
That was two weeks in a row that we had taxes, so I mean we were just filling everything. And again, no, I like it. Third Wednesday of each month, talk a little bit of taxes. There’s always so much changing, so much evolving, so much I think questions that center around taxes that everyone has. And I think, again, we tend to joke a lot over the last couple of years of the tax code and it changing, and you get used to it and then it evolves into something different. And then, okay, this credit was last year, but it’s not this year and all that type-
Andy Fergurson:
We call that job security because it moves so fast that if you’re not going to the trainings and taking the classes, there’s no way to keep up.
Nate Kreinbrink:
And I think a part of that is, again, like you just said, keeping up with the trainings because again, there are so many things that change from year to year to year. You just got back from a trip to DC for a tax conference. We won’t to talk about the trip there because I think you had a little bit of flight troubles, delays, cancellations, pushbacks.
Andy Fergurson:
Yeah, we had some excitement there and back, but I mean that’s what happens when you get on airplanes sometimes. But it was fun. We went to DC. I went and got my picture taken in front of the IRS building, so I can put that on my wall in my office.
Nate Kreinbrink:
Most people go to stadiums or everything else. You go to the IRS building to get your picture taken.
Andy Fergurson:
Yeah, I went and got my picture taken in front of the treasury. Did you know that the Secret Service guards the treasury 24 hours a day?
Nate Kreinbrink:
I did not.
Andy Fergurson:
Neither did I. Nobody knows. Nobody cares.
Nate Kreinbrink:
When people take Washington trips, that’s not one of the pictures that they always post on there.
Andy Fergurson:
It was interesting to see. There was an officer posted there and they were Secret Service, and they were guarding the treasury, and so I thought that was interesting. We weren’t supposed to take his picture, but we did that also.
Nate Kreinbrink:
Oh, now it’s official. You officially broke the law. It’s on radio forever.
Andy Fergurson:
I don’t think it’s a law. I think it’s strongly suggested.
Nate Kreinbrink:
But again, as we talk with that, I mean things constantly change. And again, we talked as far as how we do everyday business, and one of the things that comes up again is Venmo, is PayPal, and again, the transferring of money from one to the other, to a kid, to a family member, to a friend, to, “Hey, can I just Venmo you?” It is such a quick and easy thing that has become so commonplace. Well now it’s going to start filtering over to your tax return. And again, that’s going to be this year and some of the changes that brings.
Andy Fergurson:
Yeah, this one, this law has been the storm cloud on the horizon for a couple of years now. We got some reprieve from the IRS last year. It was supposed to go into play in 2023 for the 2022 reporting season, but they backed it off because they weren’t quite ready. So now we’re going to have it in 2023 when we report in 2024. And so it’s here and we’re going to have to deal with it. And what’s important for people to understand is the law didn’t change. What changed was the thresholds. So it used to be that you would get a reporting document if you had more than $20,000 worth of income or if you had more than 600 transactions that were performed by a credit card or a debit card, and that threshold has dropped all the way down to $600. Number of transactions doesn’t matter.
Which means just about everybody who has Venmo or receives money through Venmo or PayPal or Apple Pay or whatever other app you have on your phone, I mean, everybody’s got six or seven apps on their phone that are related to exchanging money, it doesn’t matter what you pay out through those apps, it’s the apps that you get money back in. And what’s going to happen is anybody who gets more than $600 in any one of those vendors is going to get what’s called a 1099-K. It’s a reporting that agency’s going to be required to send out that says, “We sent Nate more than $600 worth of income,” and then Nate has to report it on his tax return. The problem with that is it’s not all income. It’s not all going to be taxable. Some of that money is transactional, right? Your son’s away at school, you send him $250 for rent, and he sends you back $250 when he can pay you when he gets paid, right?
Well, that $250 coming to him is going to look like income on his side and coming to you is going to look like income on your side, but neither one of you made any money. You both were just trading money. And so it’s important for taxpayers to understand what that money is. And so what your tax preparer is going to ask you, well first I’ll say when you get these 1099-Ks or when you get the notice inside your app that says, “Hey, a tax document’s ready,” you need that document. If you don’t use that document, if you don’t report that income on your tax return, you will get a letter, a CP-2000 letter in June, July, August. You’ll get a letter that says, “We know you got this money, and you didn’t report it. You owe tax on it.” Or you’re going to have to amend your return.
It’s just going to be a big mess. So you can cut that problem down by, first of all, bringing that form in, and secondly, knowing what is involved in the money that’s there. So let’s say you get that 1099-K from Venmo and it says that over the year you received $2,000. You need to know how much of that $2,000 was transactional, somebody reimbursing you for concert tickets or a friend paying you gas money because you drove them somewhere, whatever. You need to know what part of that is transactional, basically just a reimbursement, and you need to know what part of that is from the sale of an item because the sale of an item may be taxable. Now, there’s a lot of stuff that goes around. Let’s say you sell your couch for 600 bucks and the people pay you on Venmo. If they pay you $600 on Venmo, you’re going to have to report that $600, but that may not be taxable to you. Depends on how much you bought the couch for.
If you bought that couch for a thousand dollars seven years ago and you sold it for $600, first of all, great job getting that much money for a used couch. But secondly, it’s not taxable because that’s technically a loss on that item. You bought it for a thousand and you sold it for 600. Now you’re not going to get any benefit from the loss because there’s no benefit for personal items that you take a loss on. But if you bought that couch for $500 and sell it for $600, you do have to pay on the gain because that money is taxable. And so that part is going to be important. You’re going to need to know what was transactional reimbursement type of stuff, what was items for sale, and then you’re going to need to know what you paid for those items and what you got in return for them.
So it can be pretty confusing if you’ve got 10 items that you sold. I mean, say you’re a Facebook marketplace guy who does transactions through Venmo or PayPal or Google Pay or whatever it is you use, you’re going to have to do a little homework. You’re going to want to come with that information ready to go because it’s going to slow down your return.
Nate Kreinbrink:
So again, I mean, the use of these types of apps and money exchange programs, obviously is not anything new. We are, again, just mentioned we are the third week of August, there’s been a lot of transactions through these avenues obviously up until this point. I guess going forward, best practices would be to keep a journal basically, or start keeping a transaction report as far as, “Okay, this is money coming in, this is what it’s for, this is what it for,” because again, we are three-fourths of the way or getting real close to that through the year. That’s going to be flipping over to tax time here again, in no time.
Andy Fergurson:
Any minute.
Nate Kreinbrink:
But then again, they come in and meet with you for their 2023 tax returns. For some people, this could be the first they’ve ever heard of it.
Andy Fergurson:
Absolutely.
Nate Kreinbrink:
So there’s not going to be any transaction history, and it’s going to be kind of a holdup-
Andy Fergurson:
It’s going to be a mess.
Nate Kreinbrink:
… a little bit as far as walking people through this until they get in the habit going forward, as far as keeping track of some of this stuff.
Andy Fergurson:
Yeah, and I would say best practice is probably going to be you’ve got seven apps on your phone, pick one and make that one your transactions, right, your reimbursements. Then when that 1099-K comes, you don’t have to worry about it. You know that everything that went through Venmo was a reimbursement. Then pick another one for when you’re going to do your sales so that you can track your sales. Then you’ve only got to track one of them, and it might make things a little bit cleaner for you, but definitely it’s going to be a change. It’s going to require a little bit more attention, and that convenience that we’re taking advantage of through those apps is now going to be a little less convenient because we’re going to have to report that in a way that we can justify those incomes without paying the tax on them, unless they are taxable, and then we have to pay the tax.
Nate Kreinbrink:
So in the meantime, if you’ve got any questions on this topic that we went over today, I mean give you a call. We can kind of help you and answer a few more questions. I know you brought up a whole notebook full of bullet points that you wanted to cover that you were excited to. We got through one.
Andy Fergurson:
I don’t know that we even got through it.
Nate Kreinbrink:
We’ve got enough content going forward with some of this stuff that we’ll keep hitting you through the thing. But again, before we run out time, did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of August will be donated to the Duke Slater Memorial statue and scholarship fund. Andy, I appreciate you joining me today. Andy Ferguson, NelsonCorp Tax Solutions, Nate Kreinbrink, Nelson Corp Wealth Management, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.