Venmo has become an increasingly popular way of payment due to its ease of use and extremely user-friendly app. This being the case, many entrepreneurs and small business owners are using Venmo and PayPal as one of their primary payment methods. Before this year, anyone who was earning under $20,000 in total payment income on various platforms such as Venmo, PayPal, and Airbnb would not receive a tax form, making it almost impossible for the IRS to check on these transactions. This is set to be changed with the increased utilization of Form 1099-K.
Breakdown
Form 1099-K is a form sent to taxpayers who, before 2022 had gross payments exceeding $20,000 and had more than 200 total transactions from 3rd party payment methods (Venmo, PayPal, etc…), but since the start of 2022 the IRS has changed the requirements of that form to just $600 with no minimum number of transactions needed for the calendar year. This change will make it increasingly difficult for small/individual vendors because now it forces them to keep records on anything being sold for a profit whereas before, as long as they kept it under $20,000 they didn’t have to worry.
Reducing Confusion
One way small/individual vendors can reduce the confusion to split their payments between their personal, and for-profit payments, can be to create a second account for commercial activities or to separate payments by platform. For example, you can restrict Venmo for only personal uses, like when you pick up a tab for lunch and your friends/colleagues send you their share of the bill, and then you can use PayPal for strictly business use if you were selling something on eBay or something of that nature. This can also be seen, however, as not very practical because the situation or person you are dealing with may not have the specific platform you use for either personal or business use.
Wrap up
If you are using Venmo or PayPal to sell things for your business, it is time to start paying attention and keeping records on all your transactions because the IRS will now be sending out more 1099-K forms than ever before. If you are confused about these new rules or just need general guidance on how to navigate this, it could be a good idea to get in contact with your financial advisor and make sure you have all of the details.