Weber Gallagher’s Family Law Group frequently reviews payments made through popular mobile apps such as Venmo and Apple Pay for discovery and support purposes. Clients who utilize one of the many mobile payment platforms available to pay for services and goods help attorneys maintain accurate and timely records of such payments.
For example, if a babysitter is ready to leave after a long night, the client can instantly send money to the sitter via Venmo. Or maybe your client wants to buy something for their kids on Etsy. Buyers can use Apple Pay. That way, the seller keeps the money and the buyer gets the gift. Well, the Internal Revenue Service (IRS) now wants to get in on the action. Starting January 1, 2022, all mobile payment apps, including Venmo, PayPal, and Cash App, will be required to report business transactions of $600 or more annually to the IRS.
This tax law change is part of the American Rescue Plan Act, passed in March 2021, and will have a dramatic impact on the way people do business. This was a dramatic change from when the IRS only taxed mobile payment apps if there were 200 transactions per year totaling more than $20,000.
The IRS has delayed implementation of a $600 reporting threshold for goods and services transacted through third-party vendors such as Venmo and PayPal until 2023. Regular users of P2P payment platforms will receive a 1099-K that must be reported to the IRS. It is important to note that even if P2P does not issue a 1099-K, all transactions for goods and services that exceed the $600 threshold must be reported for income tax purposes. Keeping detailed business records, such as invoices, can help reduce your taxable income. A Venmo transaction alone, even if specified, is not sufficient to prove that the transaction was for a legitimate business purpose that merits a deduction. Individuals who use Venmo to split a meal or apartment bill will not receive a 1099 because these types of transactions are not considered income. Careful record-keeping, proper identification of business-related expenses, and the use of his P2P platform between friends are key factors to ensure that transactions are tax-free.
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