What You Need to Know about PayPal and Venmo
Everyone is using peer-to-peer (P2P) payment apps now, both personally and for collecting payments for your business. The convenience and simplicity of these payments have been widely adopted, but are there PayPal, Venmo or Stripe taxes that you should be aware of?
If you use one of these apps (or any other P2P payment apps) for your business, here are some of the tax considerations to keep in mind:
· The moment you start accepting business payments on a P2P payment processor, you are responsible for reporting that income.
So your personal use of Venmo to send a friend half of the dinner bill is not considered a taxable transaction, but if you allow your business customers to pay for your service through Venmo, (including tips, self-employed job payments, independent contractor payments, freelance, gig-work, real-estate rental), you must report that as income for tax purposes.
· The IRS requires that these payment platforms provide information about customers who receive payments for the sale of goods or services.
At the beginning of 2022, the threshold for this reporting was changed to $600 in payments, without any regard to the number of transactions. Meaning, if you collect $600 or more in payments for goods or services, PayPal, Venmo and Stripe will be reporting that information to the IRS. PayPal, Venmo and Stripe will also send you a Form 1099-K, but even if you do not receive a 1099-K, you are still required to report any business income you receive through these platforms. Do not take the chance of being audited by not claiming these P2P payments on your income tax return.
· Paying Expenses through PayPal or Venmo:
For IRS purposes, using PayPal or Venmo is similar to paying in cash. Business owners need to have additional documentation for expenses paid for through these P2P platforms to be able to itemize these deductions. Keep vendor invoices, payment receipts or expense reports for supporting expense documentation.
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