What To Do After You've Filed Your Taxes?
With tax season now in the rear view mirror for most of us, it’s time to start thinking about how to minimize your taxes on next year’s tax return.
Get started on your tax planning for next year by learning about the tax consequences of different types of virtual transactions, from cryptocurrency and non-fungible tokens to internet marketplaces and online courses.
Tax Consequences of Virtual Transactions
As social distancing turns convenience into necessity, the number and types of activities moving to the internet is exploding. It’s important to remember that these virtual events often trigger real-world tax implications.
Here are some things to keep in mind:
- Internet marketplaces – Proceeds of sales of goods and services on internet marketplaces can be taxable income. That's true whether you're a hobbyist or running an online business. Depending on your level of activity, tax rules may limit your deductions. Internet sales may also be subject to sales or use taxes, which vary by state. If the platform is considered a Marketplace Facilitator, sales taxes are collected by the marketplace itself and remitted to the appropriate taxing entities. In other cases, that responsibility may fall on you. So you need to know the difference.
- The IRS is watching – New reporting requirements require more reselling activity to be reported to the IRS. So if you resell your sporting event tickets or concert tickets using an online tool, expect the platform to ask you for information about yourself, including your Social Security number. Why? E-bay, StubHub, Ticketmaster and similar platforms must now report a lot of this activity to the IRS via new Form 1099-K reporting rules!
- Online courses – Social media platforms are loaded with advertisements for how-to courses on every conceivable topic – including how to create your own online course. If you decide to share your knowledge in a particular subject matter by developing and selling an online course, proceeds can be subject to income tax. Sales and use taxes may also be due on the purchases of these courses in some jurisdictions.
- Crowdfunding – If you use crowdfunding platforms like Kickstarter or Indiegogo to raise funds for your business venture or project, the money you receive can be taxable. If you provide a reward in exchange for different amounts, the funds you receive are treated as sales proceeds. Crowdfunding transactions may also be subject to state sales and use taxes. If backers of your venture receive equity in your startup company, those transactions may not be taxable as income, but they are regulated by the Security and Exchange Commission.
- Online fundraising – Funds you receive through an online fundraising campaign to pay for medical bills, disaster recovery or other personal expenses generally are treated as nontaxable gifts. Donations to such campaigns may even qualify as deductible charitable contributions by the donors.
- Social media influencers – It may seem like fun to develop a significant following on social media, but capitalizing on that audience through product endorsements and other influencing activities is treated as business income. Endorsement payments are taxable and so is the value of any products received in exchange for reviews or brand placements in social media posts.
- Virtual currency – Payments you receive in the form of virtual currency for goods and services are treated similar to cash transactions and are included in your gross income at fair market value. But to add a level of complexity, that virtual currency is also considered property, which can result in taxable gains or losses. So you will also need to attach the fair market value to that virtual currency as of the receipt date of the currency. Then when you use the currency you will need to track a gain or loss on that future transaction.
Please call if you need help sorting out the tax implications of any virtual activity or transaction.
Learn how Overdrive Business Solutions can help you today!