How to Determine if You Owe Money for Venmo Taxes
You probably won’t need to worry about the tax repercussions of using Venmo to divide a restaurant check. Or to collect your roommate’s share of the rent. Nevertheless, if you use well-known software to collect payments for a business, you might have to make amends with the IRS for venmo taxes.
Although the fundamental tax laws separating business from personal income haven’t altered significantly, Venmo payments have recently caused some understandable misunderstandings. Here is what’s happening:
- The IRS is already strengthening the reporting requirements for payment apps. This is to better understand corporate income paid through Venmo and its rivals.
- In 2023, if you use Venmo or another payment app to get more than $600 in payments for goods and services, the app’s owner is required to issue a Form 1099-K to you and the IRS outlining the details of those transactions. Originally, $20,000 and 200 transactions were required to start one of these types.
What Taxes Apply to Venmo?
You must declare any income you get as a result of your employment to the IRS. And pay any associated taxes. This holds whether you are receiving payment via a credit card, check, or Venmo.
The fundamental idea still holds today, but it will be simpler for the IRS to keep track of these payments.
Even if you’ve always been meticulous with your bookkeeping, the move can add some new tasks for you to complete.
Why Is My Tax Information Required by Venmo?
When someone uses Venmo to receive payments for products and services, the company gathers tax information to create a Form 1099-K for them. A Social Security number or tax identification number is one of the details needed.
Venmo claims that if you don’t supply the relevant information, it is mandated by law to perform “backup withholding” on your behalf. By holding onto a portion of your income if you haven’t submitted identifying information, the IRS can try to ensure that it always receives your tax money.
Although it is presently fixed at 24%, the percentage of your payments that are subject to withholding may change over time.
The good news is that backup withholding is frequently not a problem. Especially if you give the correct tax information. And you haven’t previously run into recordkeeping concerns with the IRS.
Venmo stresses that it isn’t holding onto your money for its gain if you are subject to backup withholding.
Venmo’s website clearly states that it does not hold any of your money. Payments that have been put on tax hold are still in your account. But you cannot access them until you supply your tax information or until the following [monthly] backup withholding period.
What Kind of Payment Is Deemed Taxable by Venmo?
The platform considers all of your payments to be made for business purposes. Especially if you have a Venmo business account. As a result, you’ll probably need to declare that revenue on your taxes and pay Venmo’s business expenses.
Nevertheless, not all of the money you receive through Venmo if you have a personal account is automatically regarded as taxable income. In case you missed it, there is a field where payers can indicate that a transaction is for “goods and services.”
Both the buyer and the seller may be eligible to purchase protection. Especially when the transaction is marked as “goods and services,”. And Venmo is free to keep charging the same 1.9% plus 10 cents fees it does for charity and business accounts.
If you occasionally accepted personal payments using a business account that was previously below the tax reporting level, things could become tricky. You must now persuade the IRS that the money from personal transactions stated on your forms has nothing to do with your company.
Does Venmo Offer Any Other Tax-Related Documents?
If you purchase and trade cryptocurrencies via Venmo’s app, the company might also send you tax records. Taxes on cryptocurrency investments are typically computed similarly to other assets, such as stocks. Capital gains taxes may be due if you sell a cryptocurrency asset for more money than you originally paid for it.
The business will send you a gains and losses statement to use in completing your taxes. Especially if you traded cryptocurrency on Venmo in 2022.
Can I Switch Services to Avoid Venmo Taxes?
Venmo is not the only company that must adhere to the stricter IRS standards. Several well-known payment services have implemented such initiatives.
But bear in mind that you must still account for any money you receive. Even if a third party, such as an app, does not disclose it to the IRS.
Have any more questions? Contact Your Part Time Accountant right away.