Venmo Taxes: How to Handle the New Form 1099-K and Other Requirements

Venmo is a popular platform for sending and receiving money, which is widely used for both business and personal purposes. Do you have to pay taxes on Venmo? Well, not always. But if you are using this service to collect payments for provided goods or services, you need to correctly report your income to the IRS to avoid potential tax penalties and fees. The form used for this is 1099-K, and there are some changes underway regarding taxable thresholds. 

In this article on Venmo tax, you will learn who has to file this form, which expenses are deductible, and common mistakes you should avoid.

1099-K Form: Who Needs It and How It Is Filed 

1099-K is an official form created by the IRS for reporting payments received from apps, various online platforms, and payment card processors. 

As of the 2023 tax year (for which returns are due on April 15, 2024), the threshold for Venmo tax reporting remains unchanged. The main criterion is that when you conduct business using Venmo to receive funds, you need to report transactions that exceed $20,000, and provide some additional info if you’ve conducted more than 200 over the year.

You should also keep in mind that the IRS plans to gradually lower the taxable threshold to as little as $600. However, this won’t happen at once. In tax year 2024, the threshold will be lowered to $5,000 to avoid confusion among taxpayers and reduce the instances of individuals including non-taxable payments in their reports. 

The primary information you need to fill out in the 1099-K form includes the following:

• Payee’s/Filer’s taxpayer identification number; 
• Payee’s/Filer’s personal information (name, address, number);
• Gross payment amount; 
• Number of payment transactions;
• Merchant category code;
• Federal income tax withheld; 
• State income tax withheld.

You are welcome to download the 1099-K form on the official IRS website.

Reporting Venmo Income: What You Should Know 

As Venmo is used for both business and personal transactions, it is essential to distinguish between the two, as Venmo taxes can get confusing. 

Business transactions are taxable when they fall in the goods and services category on Venmo. If the operation is marked as belonging to this category, Venmo also charges an additional fee of 1.9% and 10 cents. An example of this such transaction is selling a product and receiving money for it.

What about Venmo tax reporting for personal use? An example of a non-taxable or personal transaction is getting money as a gift, or you're receiving money from a friend when you split dinner costs. Another example of transactions you don’t need to report is selling an item for less than its initial cost. 

If you are a self-employed individual or a single-member LLC using Venmo, you need to fill out Form 1040 and Schedule C. You can download Schedule C from the IRS website, and the information you need for it includes:

• Receipts from business-related expenses; 
• Business income statements; 
• Inventory information;
• Information on your vehicle-related spending.

This document is used for filing annual income taxes if you are not a W-2 employee. 

Venmo and Taxes: What Expenses Are Deductible on Your Tax Return 

If you use Venmo not only to accept payments from clients but also for other business expenses, you should make sure your documentation reflects this. 

Paying a team for an office renovation is a good example of using Venmo for business purposes. To make sure you can prove this happened, you need not only a Venmo transaction record but also an invoice or a receipt from the contractor. 

Deductions are a vital part of filing tax reports, so you need to know about the types of expenses they apply to. Schedule C has a separate section you can fill out to deduct your business-related expenses. They include but are not limited to:

• Contract labor;
• Advertising;
• Insurance;
• Supplies;
• Commission and fees;
• Legal and professional services, etc. 

To deduct the corresponding expenses, you simply need to enter them in the corresponding fields of the document. Keep in mind that expenses must be considered necessary and ordinary for your business.

Common Tax Mistakes and How to Avoid Penalties 

Understating Venmo revenue in your form can lead to severe penalties. If a person misrepresents their income due to disregard or negligence, the penalty is 20% of the underpaid tax sum. What is more, interest is also charged on a penalty, and the date from which it is applied can be different depending on the penalty type. 

When reporting taxes on Venmo, you need to be extra careful, as even making mistakes in numbers and calculations can result in a fine. To avoid triggering a tax audit, you need to:

• Double-check all the calculations in your form and any other numbers, such as your SSN, TIN, etc; 
• If Schedule C is relevant in your case, you always need to include it; 
• While home office deductions can be applied, avoid deducting an excessive amount compared to your income; 
• Avoid excessive charitable donations beyond what is considered reasonable for your tax bracket, as this also won’t go unnoticed; 
• Another common mistake is forgetting to add a signature, which will undoubtedly result in an audit. 

Final Thought 

Venmo is an excellent app for sending and requesting money, so it’s not surprising that it is used actively for both personal and business purposes. To make sure you don’t have problems with the law, you should ensure your tax reporting includes your gains acquired through this service. Only a few forms are required, but you need to be attentive to ensure you include only taxable transactions in your reports.

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