Venmo Transactions - Taxable or Not?
Are my Venmo transactions taxable? I have been asked this question at least 20 times in the past few weeks. Ever since Venmo announced that starting in 2022 they will be sending a Form 1099-K (which reports payment received for goods and services to the IRS) people have been concerned and a bit confused about what this means. I’m here to help clear this up!
In the next few newsletters, I will be focusing on getting “brilliant on the basics” so that you can finish 2022 with a strong sense of clarity, confidence and control.
So now, let’s review the basics on Venmo.
What is Venmo and how does it work?
Pretty much everyone uses, has been asked to use, or has heard of Venmo by now. Venmo is simply a third-party payment processor that allows you to send and receive money quickly and easily, much like PayPal (FYI, Venmo is owned by PayPal). Note, it is not a direct bank-to-bank system like Zelle. More about that later.
Venmo is super popular, and for good reason since it is so easy and widely used. Personally, I do not use it at all due to privacy concerns, and lack of clarity (payee, purpose, etc) when the transactions flow through to my preferred accounting platform, QuickBooks Online. You can learn more in my post “Why I Don’t Use VENMO and What You Need to Know if You Do.”
Can I use Venmo for personal and business transactions?
You can, but that does not mean you should. Venmo (the personal version which nearly EVERYONE uses) is supposed to be for friends and family payments only, NOT for goods and services. If you are using Venmo for business transactions, then you should use the Venmo business version, and pay the related fees, just as you would for any other credit card/payment processor.
A lot of businesses want to bypass these fees and use their personal Venmo account for business transactions. This is against Venmo’s policy, and the IRS is cracking down on this. Trust and believe - the IRS knows that there are millions of dollars being transferred, some of which should be taxable but are not because they were not reported. Those days are over - they are not leaving this money on the table anymore.
That leads us to the main question - are your Venmo transactions reported and/or taxable?
Venmo Transactions - Taxable or Not?
First, let’s define the difference between what is “reported” and “taxable”. Starting in 2022, “Anyone who receives at least $600 in payments for goods and services through Venmo, or any other payment app, can expect to receive a Form 1099-K.”
Let’s break this down for clarity:
This means $600 total, not per transaction. If you have received $600 or more IN TOTAL for payments that are classified as “goods or services”, these payments will be reported to the IRS and you will receive a Form 1099-K.
If you use your personal Venmo account for business transactions (to avoid fees although not allowed according to the terms of the app) those payments will still be reported to the IRS if your customers tag them at “goods and services.”
Your job (via your own bookkeeping, and by consulting with your tax advisor) is to determine if the transactions are taxable or not. Just because something is reported, it does not necessarily mean that it’s taxable. However, typically if you receive funds for “goods and services” that money is taxable. What you need to do is report this on your tax return, and then be sure to deduct any expenses, returns, refunds, etc to offset this income so that you only pay taxes on the net income (what’s left over after deducting all of your business expenses.)
Bottom line: Venmo is now reporting certain transactions to the IRS and it is up to you to accurately report your income and deductions so that you pay taxes on what is fair and legally owed. That’s why it is so important to Know Your Numbers. Check out my post How I Saved a Client $154,000 in an IRS Audit with this #KnowYourNumbers Strategy for a true story of the power of knowing your numbers.
Disclaimer: Please consult with your tax professional for specific guidance. This post is just to provide education on the topic and is not legal or tax advice. Everyone’s situation is different but there is a lot at stake here so you need to be informed and prepared.
Final Thoughts
As mentioned earlier, I prefer to use the bank-to-bank transfer system Zelle since it gives me more clarity, which is critical to knowing your numbers. Zelle does not report transactions made to the IRS, so you will not receive a Form 1099-K for payments made via Zelle. See more about this at Does Zelle® report how much money I receive to the IRS?.
Zelle is not for everyone (specifically if your bank does not support it), and there are some things you need to know regarding scams and how to use it safely. I’ll save that for next week 😊.