If Your Business Uses Venmo, Read This Now

Jan 23, 2020

picture of two people making a venmo transaction to accompany article about venmo tax implications

Why is Venmo Blowing Up?

Released by PayPal in January 2018, Venmo’s instant, person-to-person transfer feature is becoming more and more popular among both consumer and commercial clients.

Convenience is what makes Venmo’s new feature a smash hit. The app offers consumers a quick and easy way to reimburse someone for cab fare or lunch. Unlike slow bank transfers, a Venmo transfer is instant, and the cash is transferred from one account to another without bank involvement. It’s so convenient that many businesses are now looking to offer Venmo as a payment option.

The Potential Tax Problem With Using Venmo for Your Business

Jonathan Wolnik, contributing writer at Crain’s Cleveland Business, points out a significant problem with using Venmo consumer accounts for commercial transactions: Venmo consumer accounts aren’t designed for transacting business, a function which is reserved for “approved business accounts.”

Despite this requirement, many commercial users buy and sell products and reimburse employees over Venmo. When you transfer cash, the Venmo system sends users a timestamp notification of the transfer, which is often relied upon as a receipt.

But Venmo’s digital timestamp is not a receipt because it doesn’t include transaction details. It can’t be used to prove anything, except the date and time that cash passed between accounts. Consequently, doing business with a Venmo consumer account is more like an under-the-table cash transaction.

Another drawback of using a Venmo consumer account is that it doesn’t interface with accounting software. Businesses must record every consumer account transaction separately for tax purposes. If, for example, a Venmo consumer account is used to pay employees, withholding must be accounted for elsewhere. And, as with any under-the-table business transaction, if the government discovers improperly recorded Venmo consumer transactions, the tax consequences can be severe.

Venmo administrators also distinguish between Venmo consumer and business accounts. When abuse of a consumer account is suspected, administrators can cancel a transaction without notice and reverse charges because it violated the company’s account policy.

Businesses seeking the convenience of digital payment methods should avoid Venmo consumer accounts, opting instead for Venmo approved business accounts.

Connect with a Business Tax Attorney

The Gordon Law Group works with businesses on tax matters — from mobile payment issues to offshore tax consulting. Our clients rate us 10 out of 10 on respected attorney review site Avvo.com. Give us a call to find out why.

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