The recent Inflation Reduction Act approved funding for 87,000 additional IRS employees. What does this mean for the average Joe? We should all be prepared for the possibility of a tax audit. It is even more important document all income and deductions.

The American Rescue Plan of 2021 lowered the threshold for payment services to report total financial transactions from $20,000 to $600. This rule applies to people who use payment apps like Paypal, Zelle, or Venmo.

During the pandemic, a lot of people started doing side hustles because they were laid off or stuck at home. Some people sold used items from around their house, while others offered various services for a fee. Many people set up online stores on Facebook, Etsy, or other websites.

Payment apps were not required to report transactions to the IRS unless the total exceeded $20,000. Many taxpayers therefore did not report the income. These apps must now report to the IRS all accounts with over $600 in total receipts.

Many payment apps, similar to checks, include a memo section for the payer to indicate the reason for a payment. This did not matter much in the past, but now payments for personal reasons should be carefully noted.

For example, a friend might use Zelle to reimburse you for a part of a restaurant check. They need to click a box indicating it was a personal payment. Otherwise, the IRS will assume that it is a business transaction. As a precaution, you should keep a list of personal payments that you received over the year.

Financial institutions are now sending out their 1099s electronically instead of mailing paper copies to account holders. Consequently, account holders need to be on the lookout for electronic messages regarding 1099s. Banks are also providing 1099 annual interest income totals on January statements.

Now more than ever, we need to document all business expenses. This includes packaging, shipping, and fees charged by online payment services. Print off the invoices and keep them in an envelope to give to your income tax return preparer. You could also create a computer folder to save copies of the invoices.

Side jobs like DoorDash or Uber also send 1099s listing the total payments made to drivers to the IRS. Maintain a mileage record and all other car costs are important for these taxpayers as they are a delivery service. Taxpayers cannot just estimate the mileage or use a percentage of total miles driven. There are several excellent mileage tracker apps that make it easy to keep up with business miles driven.

If you accept business payments online, document these costs because the IRS will be notified if you collect more than $600 through a payment app. And documenting costs will reduce taxes. A little work today will save tax dollars next year.