According to the CEO of PayPal, Dan Schulman, PayPal’s move this week, which allows users to transfer crypto from PayPal’s crypto walled garden to an external wallet is an important step toward a digital currency-oriented world from a fiat one.
Schulman, who was joined by Jose Fernandez da Ponte, PayPal’s crypto lead at Consensus 2022 in Austin, Texas says that the company has big plans with crypto. Schulman said, “We will take your cryptocurrency and change it to fiat so that you can use it in any of our 35 million merchant accounts. We are trying to add functionality.”
At first, it may look like PayPal is just following the fintech trend that includes Robinhood and other crypto trading apps. But when you look closely, it enables customers to get crypto in and out of their PayPal wallets and harnesses big disparate networks.
For instance, let’s say there are 100 million crypto users. There are hundreds of millions of consumers and millions of merchants, but they are separated. What we are doing is building a bridge between the crypto universe and the fiat universe. And the combined value of these two networks is going to be way higher.
When it comes to payments, people don’t use crypto very often, but due to stablecoins, digital identity innovation, and regulation, the volatility might lessen over time and the practicality and utility might increase, according to Schulman.
What Does It Mean For Your Taxes?
PayPal is now required to report to the IRS. If the annual gross transactions are more than $600 for goods and services, it is considered a taxable event and PayPal has to report this to the IRS. Also, this PayPal IRS reporting with a lower threshold of $600 means a lot of people will receive Form 1099-K.
Also as Schulman said that they will change crypto into fiat for buying goods or services, it is important to note that in the eyes of the IRS, it is a taxable event. It is the same as selling your cryptocurrency at fair market value.
For instance, if you buy a cup of coffee every day with PayPal using your cryptocurrencies, it will trigger a taxable event. So, come tax season, you should have the records of all the transactions you’ve made with cryptocurrencies. This can be an inconvenience as maintaining a record of everyday crypto transactions can get out of hand. And if you are using apps other than PayPal, it can get tricky because now you have to calculate taxes from different apps and put them on your tax forms.
This is where ZenLedger, a cryptocurrency tax management, and accounting platform comes into the picture. Founded in 2017 by veterans in finance, accounting, and technology, ZenLedger helps cryptocurrency users stay compliant by aggregating transaction information across hundreds of crypto exchanges, tokens, and wallets into one simple dashboard that easily generates required tax forms.
Even though the core competency of ZenLedger is simplifying crypto taxes, one can also use it to manage their crypto portfolio and track their taxes on one dashboard. The platform has a free crypto portfolio tracker that allows you to analyze your current crypto portfolio’s performance, view in-depth coin and exchange allocation insights, and monitor real-time coin pricing and trends.
The Takeaway
PayPal is making strides in bridging the gap between the crypto world and the fiat world. With PayPal, users would be able to use their crypto funds as daily drivers and buy goods and services. However, using crypto to buy goods and services daily has tax implications. And to simplify these implications, you can use ZenLedger, which automatically calculates your crypto taxes and generates your tax forms.
FAQs
1. Does PayPal automatically report to the IRS?
Yes, payment apps such as PayPal have to report to the IRS. If the annual gross transactions are more than $600 for goods and services, it is considered a taxable event and PayPal has to report this to the IRS. Also, the lower threshold of $600 means a lot of people will receive Form 1099-K.
2. What happens if you don’t report PayPal on taxes?
If you don’t report your crypto transactions from PayPal, you could get a notice from the IRS. Furthermore, if you deliberately don’t pay taxes, it could lead to interests, penalties, and even criminal charges. So, if you get a notice, respond to it and provide the necessary documents if the transaction was nontaxable.
3. How much do you have to sell on PayPal to get 1099?
Payments apps such as PayPal and Venmo are required to provide Form 1099-K to their users if they receive more than $600 for goods and services transactions. If you don’t cross the $600 threshold, you will not receive the form.
