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How the IRS will treat your Venmo payments to and from your business?

The convenience of Venmo and digital money exchanging platforms like Zelle and QuickPay has many businesses, both large and small, using the application to make payments to others and to receive payments for their services and/or products.

What is Venmo?

If you are not familiar with it by now, Venmo is a payment-processing app that allows you to send money from your phone directly to recipients.

Owned by PayPal, the app allows you to link up your bank accounts or debit card so you can transfer and receive money from others.

Don't have cash on you to make a purchase? Just use Venmo and the payment will process with no transaction fee. Venmo is similar to other payment apps such as Zelle, Cash App, and Square. Its super-fast, easy, convenient and widely used by Millennial's and soon to be Gen-Z.

Venmo for your business

Venmo also allows you to give customers the option to purchase your items and make payments using their accounts on your website, online store, and app. Large corporations such as Uber, GrubHub, and Lululemon have hopped on the Venmo wagon and give customers the option to make payments with Venmo. Uber recently rolled out an attractive promotion, offering customers 5% off when using Venmo as a payment method

In addition to using Venmo to receive funds, small business owners may want to start using Venmo to also pay others. But be careful doing so. We do not recommend going this route, however have seen some small businesses opt for Venmo and Zelle due to the convince factor. If you are using this as a vehicle to reimburse employees for business-related expenses, each expense should be documented through an expense report. You can go the old fashioned pen and paper expense chart, or use mobile cloud applications like Expensify for day to day expenses or SAP Concur if your reimbursements are travel intensive. It's important to do it the right way!

What is the proper procedure for business owners who pay individuals via Venmo?

If you decide to start paying individuals via Venmo, you must send them a 1099-MISC form to those you pay over $600 in a calendar year. This is because this income is considered taxable and must be reported to the IRS. Venmo will NOT send you a 1099-K form as its parent company PayPal might if you have receipts totaling over $20,000. That's why it's extremely important to report individual payments made by the Venmo app in excess of $600. It's the business owner's responsibility.

Questions about if Venmo is the best way to pay others from your business? Give us a call today!

Keith Boyer, CPA

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