Plan

Language:

Venmo Taxes 2024: What Are the Rules? 

By Ashwani Shoda

Published on 27 May 2024 5 min read

Navigating taxes is a daunting task for any business. However, it becomes even more complicated with the introduction of digital payment platforms like Venmo. In this comprehensive guide, we will break down everything you need to know about Venmo taxes for businesses in 2024.

From understanding the standard rules and state guidelines to maximizing your tax deductions, we’ve got you covered. So take a seat, and let’s dive into Venmo taxes!

Introduction to Venmo for Business

Venmo recently introduced Business Profiles, a feature allowing businesses to create a separate profile for their business transactions. Business Profiles offers additional tools and features such as generating sales reports, tracking expenses, and customizing payment descriptions.

This can be useful for businesses looking to streamline their transactions for seamless tax filings.

One of the main benefits of using Venmo for businesses is its convenience and speed. Customers can simply make payments through the app while on the go, making it an attractive option for small businesses without traditional point-of-sale systems. Another advantage is its low transaction fees compared to other payment methods. 

For business transactions, a flat fee of 1.9% + $0.10 per transaction applies when accepting payments from customers through Venmo Business Profiles.

This fee applies regardless of whether the customer pays with their linked bank account, debit card, or credit card. For larger businesses with high transaction volumes, Venmo offers custom pricing plans to help reduce fees.

In addition to its convenience and low fees, using Venmo for business transactions also allows for quick and easy record-keeping. The app automatically generates a digital receipt for each transaction that can be easily accessed and viewed by both the business owner and the customer.

This eliminates the need for paper receipts and simplifies bookkeeping processes.

Tax Laws and Regulations for Venmo

While Venmo has become an increasingly popular payment platform, questions about its tax implications for businesses have been raised.

First, any income from Venmo is taxable by the Internal Revenue Service (IRS). This means businesses must report all payments received through Venmo as part of their gross income on their tax returns.

Unlike traditional payment methods such as credit cards or checks, where taxes can be automatically deducted at the time of transaction, Venmo does not have this capability. Therefore, it is the responsibility of businesses to track and report all income received through this platform accurately.

Also, the IRS classifies payments made through Venmo as either business or personal transactions.

So, businesses must keep detailed records of all transactions made on Venmo to correctly categorize them for tax reporting purposes. Failure to do so could result in incorrect reporting or even potential penalties from the IRS.

Additionally, depending on local tax laws and guidelines, you may be required to collect sales tax from customers and remit it accordingly. Therefore, business owners must research and understand these requirements based on location and industry.

Consult a tax professional for personalized guidance in keeping accurate records, correctly categorizing transactions, and navigating state tax laws.

Reporting Venmo Transactions on Tax Returns

First and foremost, keeping accurate records of all Venmo transactions is crucial for businesses. This includes both incoming and outgoing payments. To simplify things, you can download monthly statements from your Venmo account, which provide a breakdown of all your transactions.

When reporting income on your tax returns, you must report the full amount received before any fees are deducted by Venmo. This means that if you receive a payment of $100 but only $97.50 is deposited into your bank account after Venmo’s standard 2.5% transaction fee is deducted, you still need to report the full $100 as income.

It is also important to note that Venmo’s processing fee is included in the total amount received, unlike traditional credit card payments, where the merchant receives the full amount and pays a processing fee separately.

Therefore, having separate categories for “income” and “fees” may be helpful when recording these transactions in your accounting system.

Another aspect to consider when reporting income from Venmo on tax returns is whether it falls under self-employment income or business income. For example, if you receive regular payments through Venmo for goods or services, it should be reported as self-employment income.

However, if you also use Venmo for personal expenses, it does not need to be reported on your business taxes.

Deductible Expenses Related to Venmo Transactions

When it comes to Venmo transactions, businesses should be aware of a few key tax deductibles and expenses. Firstly, transaction fees incurred using Venmo for business can be claimed as a deductible expense.

This includes the standard 3% fee for credit/debit card transactions and the 1% fee for instant transfers. Remember that these fees must have been directly related to your business activities to be considered deductible.

Any purchases made through Venmo necessary for running your business can also be claimed as a deductible expense. This may include office supplies, equipment rentals, or even travel expenses if they were paid for using Venmo.

It is important to keep detailed records and receipts for these purchases if you are audited by the IRS.

Another common use of Venmo in businesses is paying employees or contractors for work-related expenses. These reimbursements can also be deducted from your total income as a business expense.

However, depending on your business structure, there may be some limitations on deducting expenses related to Venmo transactions for your business.

Keeping Track of Venmo Transactions for Taxes

Keeping track of Venmo transactions for tax purposes may seem overwhelming, but it can be easily managed with a few strategies.

It’s crucial to keep detailed records of all your Venmo transactions throughout the year. This includes each transaction’s date, amount, description, and purpose.

Also, save receipts for purchases made through the app, which may be required by the IRS in case of an audit.

To simplify the process of tracking your Venmo transactions, consider creating categories based on different types of expenses, such as office supplies, travel expenses, or advertising costs. This will allow you to quickly sort through your transactions at tax time and ensure no deductible expenses are missed.

Bookkeeping or accounting software specifically designed for small businesses can also help manage Venmo transactions efficiently. These platforms offer integrations with Venmo so that every transaction is automatically recorded in your books. This not only saves time but also reduces the risk of manual error.

Reporting Venmo Transactions on Taxes

Reporting Venmo for taxes correctly is crucial for businesses to avoid costly mistakes and IRS penalties. If you get paid from third-party apps like Venmo, you may receive a tax document called a Form 1099-K to file your tax returns.

It’ll be used to report when a business receives over $20,000 in gross payments and has over 200 third-party network transactions in a calendar year. 

However, receiving a 1099-K doesn’t necessarily mean you’ll owe taxes. For example, if you sold your car on Venmo for $23,000, which you have bought for $30,000, you could report the loss when you file your return and avoid any tax liability.

Therefore, it’s always best to consult with tax professionals to ensure compliance and avoid any penalties from the IRS.

Get Started With doola to Streamline Your Tax Filings!

We understand how time-consuming and confusing taxes can be. So, when it comes to streamlining taxes and keeping an organized record of your finances, doola is your go-to solution. 

Our total compliance package for tax consultation and ongoing regulatory compliance automates back-office processes to keep track of all your financial transactions throughout the year. By doing so, you can avoid unnecessary delays and ensure the smooth filing of your taxes for financial stability and credibility.

Get started with doola today to simplify tax filing and say goodbye to mountains of paperwork!