The IRS plans to implement its new 1099-K reporting requirement in 2024, which means that anyone who receives $5,000 or more in income via third-party payment apps such as Venmo App, will receive a 1099-K the following year.
Venmo Taxes: New IRS rules
The IRS has introduced new rules regarding taxes on income earned through Venmo. As of 2023, the IRS has delayed the implementation of new Form 1099-K reporting thresholds.
Most taxpayers will only receive a 1099-K tax form if they receive more than $20,000 and at least 200 transactions. However, individuals are still responsible for reporting Venmo income below these thresholds and paying taxes on it, even if they don’t receive Form 1099-K.
The $600 tax rule is another new requirement that will eventually necessitate third-party payment apps like Venmo to submit Form 1099-K for transactions over $600.
Venmo Taxes in Eligibility
Here’s a breakdown of the current landscape of Venmo taxes and what to expect in the coming year:
- 2023: The originally planned $600 threshold for business transactions was delayed due to concerns. The current threshold for 2023 remains the higher $20,000 and 200 transactions.
- 2024: The IRS plans to implement a new $5,000 threshold for business transactions reported on Form 1099-K in 2024.
- Remember: These thresholds only apply to business transactions, not personal payments like splitting bills or repaying friends.
- Transaction Volume: You’ll receive a 1099-K only if you exceed the threshold for business transactions in a calendar year.
- Transaction Nature: All business-related payments count towards the threshold, including sales of goods, services, and rents.
- Account Type: Using the Venmo “Business” feature automatically categorizes transactions as business, impacting your eligibility.
- Personal vs. Business: It’s your responsibility to correctly categorize transactions. Mislabeling business transactions as personal could lead to tax issues.
- Personal Payments: Payments for personal expenses like meals, shared expenses, or gifts don’t count toward the threshold.
- Small Business Deduction: If your net business income from Venmo is under $20,000 (excluding expenses), you may qualify for the small business deduction and avoid reporting on your tax return.
Venmo’s Tax Implications
- Taxable Income: Income from selling goods or services through Venmo is generally considered taxable business income. You’ll need to report it on your tax return and may owe income tax.
- Deductions: You can deduct business expenses associated with your Venmo activities, like supplies, marketing, and transaction fees.
- Hobby vs. Business: If you occasionally sell personal items, like used clothes or furniture, you may have hobby income. Up to $1,500 of hobby income in 2024 is tax-free.
- Reporting Requirements: Hobby income from Venmo doesn’t need to be reported on your tax return unless it exceeds the $1,500 threshold and your total hobby income from all sources surpasses $10,000.
- Tax-Free Gifts: True gifts between friends and family are not taxable, even if sent through Venmo. However, be cautious of large “gifts” disguised as payment for goods or services – the IRS may not be fooled.
- Gift Limits: There are no set limits on taxable gifts, but large gifts may have estate tax implications when the giver passes away.
What is the deadline for venmo users to report their taxes?
The deadline for filing your tax return depends on a few factors, including whether you file an extension:
- Standard deadline: The standard deadline for filing your tax return is April 15th of the following year. This means the deadline for reporting any income you received through Venmo in 2023 is April 15th, 2024.
- Extensions: If you need more time to file your return, you can request an automatic six-month extension until October 15th. Simply file Form 4868 by April 15th.
- Keep in mind that this extension only applies to filing your return, not paying any taxes you owe. You may still be subject to late payment penalties if you don’t make at least some estimated tax payments by April 15th.
Tips for Venmo Users
Some tips to navigate the new Venmo tax implications:
- Detailed Records: Maintain a spreadsheet or use the Venmo app’s download feature to document every transaction, including date, amount,and purpose.
- Use “Business” Feature: If you use Venmo for business, switch to the “Business” feature. It separates transactions, automates record-keeping, and provides valuable analytics.
- Beware Large “Gifts”: Large “gifts” disguised as payment for goods or services may raise IRS red flags and be considered taxable income.
- Categorize Correctly: It’s your responsibility to correctly categorize transactions. Mislabeling business income as personal could lead to tax penalties.
- Seek Professional Help: When unsure about the tax implications of specific transactions, consult a tax professional for personalized advice.
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