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Using Payment Apps for Business

July 27th, 2022

Posted in Business & Corporate Law,Tax Law & IRS Defense

You have probably used payment apps like Venmo or Zelle to transfer money to a friend or make a payment to a business. Think of these payment apps as a faster way to transfer money when compared to prior formats such as PayPal or Stripe. Recently, there was a provision in the American Rescue Plan Act of 2021 that reduced the threshold for these type of transactions from $20,000 or 200 transactions to $600 without regard to the number of transactions, resulting in businesses receiving Form 1099-K’s (and the IRS also receiving the tax form). This new law allows for increased potential for businesses to be audited if they do not correctly report their earnings.

If you are transferring money for your personal life, then there is generally not a need to worry about reporting payments on your tax return. However, if you are accepting payments on one of these platforms as a business or for the production of income, you are required to report your revenue or gross profits (just as you always have been obligated to report the income). Expenses are another issue to consider as business owners will need to provide invoices, receipts, or expense reports that are related to the payment app transfer.

It is in your best interest to keep your personal and business transactions separate when using a payment app. Upgrade your bookkeeping strategy to protect against an IRS audit. Ensure your reported gross receipts or sales on your tax returns equals or is more than your combined Form 1099’s. Also, keep detailed records of payments and expenses for your business to refer to when you are filling out your tax forms. If you are unsure of how to proceed with reporting to the IRS, talk to a professional or accountant who can guide you through the process. If you find yourself in a tax audit, consider engaging a tax attorney.

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