New $600 reporting requirement

Financial Planning Tax Strategies
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I receive a monthly payment of $750 via Zelle from somebody I made a loan to a couple of years ago. Actually, I used my credit cards to charge things for him and he is paying me back. Every cent he pays me goes to pay down the cards. This was a personal deal not done through any business. Will my bank now be reporting these deposits to the IRS? I don’t owe any taxes on it as it is strictly reimbursement and I keep nothing for myself. We don’t have a written agreement.

I’ve already received the first $750 payment this year. Should I get an agreement drawn up in case the IRS wants me to pay taxes on this money? What about asking him to make two monthly payments of less than $600 going forward? Am I already in the IRS’s crosshairs?

–fleg

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Paypal has this FAQ which might help understand implications:

https://newsroom.paypal-corp.com/2021-11-04-New-US-Tax-Repor…

The US government and Congress have perfected the art of harassing honest small business and individual tax payers, imposing greater and greater burdens on them while letting billionaires go scot free.

The onerous FATCA/FBAR filing requirements for foreign bank accounts caused many foreign banks to close accounts of expat Americans. All it did was greatly inconvenience many honest taxpayers who suddenly lost direct deposit and other essential financial services.

The U.S. government has long condemned prominent offshore financial centers, where liberal rules and guarantees of discretion have drawn oligarchs, business tycoons and politicians.

But a burgeoning American trust industry is increasingly sheltering the assets of international millionaires and billionaires by promising levels of protection and secrecy that rival or surpass those offered in overseas tax havens. That shield, which is near-absolute, has insulated the industry from meaningful oversight and allowed it to forge new footholds in U.S. states.

https://www.washingtonpost.com/business/interactive/2021/boo…

This is the story of the incredible cloning tax break.

In 2004, David Baszucki, fresh off a stint as a radio host in Santa Cruz, Calif., started a tiny video-game company. It was eligible for a tax break that lets investors in small businesses avoid millions of dollars in capital gains taxes if the start-ups hit it big.

Today Mr. Baszucki’s company, Roblox, the maker of one of the world’s most popular video-gaming platforms, is valued at about $60 billion. Mr. Baszucki is worth an estimated $7 billion.

Yet he and his extended family are reaping big benefits from a tax break aimed at small businesses.

Mr. Baszucki and his relatives have been able to multiply the tax break at least 12 times. Among those poised to avoid millions of dollars in capital gains taxes are Mr. Baszucki’s wife, his four children, his mother-in-law and even his first cousin-in-law, according to securities filings and people with knowledge of the matter.

https://www.nytimes.com/2021/12/28/business/tax-break-qualif…

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Are you using a business account?

The IRS changed the rules for people using payment services for businesses to be consistent with previous rules.

This only applies to business accounts where if you recieved $600 or more they will report it tothe IRS. The old rule was $20,000 & 200 transactions.

https://www.cnet.com/personal-finance/taxes/fact-or-fiction-…

There was talk about banks sending deposit information to IRS but that is on hold right now unless cash over 10k.

Can’t guarantee IRS won’t question anyone but if you don’t get documentation sent to you from the payment service the IRS didn’t either. If you got paperwork, you will need to report/explain to IRS on 1040. Otherwise the IRS will most like send you computer letter asking about it.

You are safe repayment of personal without interest is not taxable.

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Thanks for the responses. It looks like for now banks will not be reporting the monthly receipt of $750 deposits into my account. I know these funds are not taxable as they are reimbursements, but I didn’t want to have to deal with the IRS if they queried it.

Just out of curiosity and not applying to me in any way: If banks have to report deposits of $10k or more, is that only for single deposits of that size or multiple deposits from the same source that add up to $10k?

–fleg

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If banks have to report deposits of $10k or more, is that only for single deposits of that size or multiple deposits from the same source that add up to $10k?

If it’s $8k today and $3k tomorrow, they’ll probably notice it and flag it. And if your intent was to avoid the reporting, and you do your deposits in smaller increments just to avoid it, that by itself is illegal.

If it’s $1k every month for 10+ months, I doubt they’d notice and since there’s good reason for it to be a smaller amount over many months (because it’s a loan being repaid) IMO they wouldn’t be able to prove that you were doing smaller deposits just to avoid the notice and therefore were doing something illegal.

IIRC, even if it’s less than $10k, if they think it’s suspicious they are required to report it.
So if you’ve never done cash deposits, then come in 3 days straight with $3k in cash, they’re probably going to be suspicious and flag it. OTOH, if you are someone who does a lot of cash business very regularly with them and regularly deposits/withdraws $3-5k at a time because of your business, they probably won’t even notice if one day it’s $8k instead of $5k because of a good week at work or whatever.

BTW - if the friend you loaned money to repays you $10k or more in a year in cash (including cashiers checks, travelers checks but not regular personal checks) you would be required to fill out form 8300.

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BTW - if the friend you loaned money to repays you $10k or more in a year in cash (including cashiers checks, travelers checks but not regular personal checks) you would be required to fill out form 8300.

I disagree. Form 8300 is only used by someone engaged in a trade or business that receives more than $10000 cash in a single or related transactions. I would argue that “you” are not engaged in the trade or business of lending money. See the exceptions listed in the instructions to Form 8300.

Ira

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If banks have to report deposits of $10k or more, is that only for single deposits of that size or multiple deposits from the same source that add up to $10k?

In the past yes, now probably not. There were accounts that had “smurfs” that would make many deposits of $9999 to dodge the $10K reporting threshold. But that was all before the global war on terror changed everything.

Regards,
SJ Coleman