BACK

Your Business Credit

Q&A: Can I charge cards with a mobile app for my side hustle?

Summary

If you’re operating a side hustle and wondering about your rights when it comes to charging cards on file and paying taxes, make sure you do your homework before you find yourself in trouble.

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Dear Your Business Credit,

I have been renting my car out on Craigslist for a few years. Before renting, I ask the renter to sign a contract including their credit card information and consent to me charging the card should fees be incurred (tickets, maintenance etc.), but because I’m not an actual business entity paying taxes this has been more of a scare tactic to ensure all is shipshape before the car is returned. I have never used the credit information provided. My question is: Can I charge someone’s credit card using their credit card number and a mobile app in the above scenario? Thank you. – Matt

Dear Matt,

What an interesting side hustle! Renting out your car when you are not using it is a great way to add a little income, but make sure you are not skirting IRS rules.

Check out all the answers from our credit card experts.

Ask Elaine a question.

Assuming your contract is valid, it does appear you can use a credit card number and a mobile app to charge your customers. Let’s say you want to use the service Square, a popular one for people who do not have a merchant account. Square says you can use its service for both individual and business use on its website.

It is possible to key in a transaction manually on Square if you do not have the physical card, but you need the name on the card, the billing address, card number, expiration date and the credit card’s security code to process it. As Square notes, keyed-in payments are “inherently riskier because the customer does not have to be physically present.”

Bear in mind that when you charge a would-be car renter’s credit card, there is a risk they could complain about the charge to their credit card issuer, leading to a chargeback. You will need to respond to collect your money, and there is a chance the issuer will side with the customer, leaving you to absorb the loss.

I am not sure why you are not paying taxes, but I would recommend asking an accountant about whether you should be. It’s worth noting that if you do a high volume of transactions, Square will send you a form called a 1099-K at the end of the year.

“Sellers who process more than $20,000 (cash excluded) and 200 credit card payments in a calendar year are eligible for a Form 1099-K. If eligible, a Form 1099-K will be uploaded to the Tax Forms section of your online Square Dashboard by January 31,” the Square website says. This is money that will be reported to the IRS.

Even if you have not exceeded $20,000, it appears renting your car may actually be considered operating a business in the eyes of the IRS, even if you have not formed a business entity. Many people operate businesses as sole proprietors without forming an LLC or incorporating.

The IRS says on its website, “A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit.” I’m assuming that you do wish to make a profit from renting your car or would not wish to deal with the stress of trusting strangers to drive it.

The IRS says it does not matter if you run your business full-time or part-time. “You do not have to carry on regular full-time business activities to be self-employed,” the IRS says.

And, as the IRS puts it on its website, “All businesses except partnerships must file an annual income tax return.” I’d highly recommend keeping good records so you can do that if you are required to do so.

See related: Charged Up! podcast: How to start a profitable side hustle, Mastering the side hustle to beat down debtAccepting international payments with Square

What’s up next?

In Your Business Credit

Can an authorized user transfer debt onto shared card?

When sharing a card, it’s best both parties agree to a certain code of honor about how the card will be used.

Published: September 29, 2017

See more stories
Credit Card Rate Report Updated: September 18th, 2019
Business
15.45%
Airline
17.38%
Cash Back
17.52%
Reward
17.39%
Student
17.58%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.