Technology has made it possible to send and receive money through peer-to-peer (P2P) mobile payment services, and that has meant changes well beyond splitting the brunch bill with friends. Businesses have explored whether it’s an easy way to pay their employees and receive payments with ease.
P2P payment platforms present a lot of benefits to businesses, as they have little to no fees, offer super-fast transactions, and are easy to set up. Some of these payment services include Stripe, Venmo, and PayPal.
Using a payment platform like Venmo, however, presents some taxation challenges for companies – and the IRS too. Businesses that use Venmo should familiarize themselves with the tax regulations surrounding the use of such platforms – namely, does Venmo report to the IRS? This guide will give you all the information you should know when using Venmo for business purposes.
An Overview of Venmo and How It Works
Venmo is a payment platform owned by PayPal, but it only operates in the U.S. The payment app is a great option for users who want to send or receive cash fast through their smartphones. It’s convenient, as you can also use it on your computer or in person since it’s attached to the user’s bank account or a debit or credit card. Venmo is also popular in the U.S., with more than 75 million active users. The app is simply a digital wallet connecting to your payment methods. Registration is a piece of cake, and you can use your contacts or email addresses to find your friends. Many people use Venmo strictly for personal transactions – the company reports that the average payment amount is $60. It allows you to easily split rent with your roommate, send cash to a family member, or transfer money to someone for any number of other reasons. Businesses are adopting Venmo in different ways, though. Large companies such as Uber and various e-commerce stores allow you to pay with Venmo, for instance. Venmo also offers its own credit and debit cards that you can use to make purchases and earn loyalty points. The app has a business profile option that allows companies to pay employees, receive funds, and track payments.
So, Does Venmo Report to the IRS?
Venmo has a simple method of tracking the payments you make when sending or receiving money. It only shows the amount of money sent to another user, but it fails to specify the reason for payment. The only record the app provides is what the sender types when sending or getting funds in their account. This presents some challenges, as the IRS is unable to effectively highlight cases of nonpayment or noncompliance. The IRS only requires Venmo and other payment platforms to report your business income if your business profile meets certain requirements. Venmo will issue you an IRS 1099-K form if your business account exceeds the set levels. Here are the requirements for a few different circumstances:
- Your sale of goods and services totals $20,000 or more in a year.
- You have 200 or more transactions for any services or goods sold during the year.
- Residents of certain states, including Maryland, Massachusetts, Virginia, and Vermont, have a $600 cap, regardless of the number of transactions they make
- Residents of Illinois have a $1,000 cap as long as there are more than three payments.
The IRS still expects taxpayers to report any taxable income they get from a P2P payment platform if they meet these requirements, even if Venmo doesn’t send them a Form 1099-K.
5 Crucial Tips on How to Use Venmo as a Business
It’s important to set up a business profile if you wish to send or receive business payments through Venmo. This is to ensure that you don’t mix up your personal transactions with business transactions. Here are more tips on how to use Venmo as a business:
Get a Tracking System
Venmo does not have a detailed tracking system, which may present challenges when reporting your taxes. One way to work around this is to use an accounting system that will help you track all income and business expenses.
Consider Your Taxes
Some businesses may opt to pay their vendors using Venmo, but you should do this with care. The IRS views P2P platforms in the same way it views cash payments, meaning you will have to substantiate all your transactions.
Always Ask for an Invoice
The details of the transactions will not be sufficient regardless of whether there’s a time stamp. Asking for an invoice from your suppliers or receiving receipts for any expenses you incur can help you solve this issue.
Be Diligent About Record-Keeping
You can track these payments with pen and paper, but using dedicated accounting software will save you time and money. Recordkeeping may not seem important while you’re conducting business, but it can be a savior if the IRS decides to audit you.
Use the Right Tax Form
Businesses using Venmo to pay employees should be sure to issue them a 1099-MISC form, especially if you pay them more than $600 a year. Those employing freelancers and other independent contractors should be sure to make them complete a W-9 form just before they start working. Employers should report income to freelancers as non-employee compensation on the 1099.
Many businesses small and large use Venmo to make and receive payments without fully understanding the tax implications. It’s wise to consult with a tax professional to avoid any tax issues or IRS penalties.
We Can Help You With Your Taxes If You Use Venmo For Business
You’ve probably heard some negatives about using Venmo as a payment system for your business, but it also might be the most convenient P2P platform for you or your employees. Silver Tax Group can help you understand the pros and cons and whether Venmo reports to the IRS, and we will ensure that you are compliant with all tax regulations. Our team of skilled tax attorneys will guide you to the best tax outcomes and defend you in any disputes with the IRS. Contact us today to book a quick consultation on using P2P services for your business.
