Reply to So people will be taxed on venmo and zelle transactions?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Right, very little of the money I'm receiving via Venmo is income -- usually it's someone paying me back for an expense I covered all of and then we split after the fact. That isn't taxable. How am I supposed to report it to the IRS?[/quote]

That isn't reportable. It's for people that do things like tutoring or dog-walking that are getting paid by Venmo. I'm not sure how Venmo and the IRS determine what the money is being transferred for though.[b] How do they know if it's just reimbursing a friend versus paying for a service? [/b][/quote]

The IRS doesn't know these things and they aren't trying to analyze it.  Whenever any documentation is submitted to the IRS, they record it with the SSN or EIN.  When your tax filing coms in, they compare the number of documents submitted with the number they have on file.  If the number is the same, great.  They accept the return.  Tax filing with the same number that are submitted automatically are usually processed very quickly.  If you have a discrepency, then it may need to be submitted to a human being to look into and determine whether there is reason to audit the record or whether it can be accepted.  The more money and the more unmatched documents (ones that are reported as payment transfers vs ones that are recorded as income), the more likely that it goes to a full audit.

If you get a 1099 for untaxable income, you should put a note on it as to what the money was transferred for from whom so that should you get a letter from the IRS about an unrecorded document, you can reply with the details.  You are supposed to keep your tax documentation for 7 years.  Anytime during that 7 years, your tax returns could be questioned.  You can provide them the details and for many cases like the ones mentioned here (transfers between family and friends), the explanation will suffice.  The question of the sports coach who is getting paid under the table is going to be a red flag, though.  For that parent, you should be keeping records of all transactions with the coach in your tax records at home.  At some point in the future, he may be audited and it may be questioned why you have hundreds of dollars of payments each year to this individual and what it was for.   You should be able to provide information that you were paying $X per session for training for your child and that you paid $Y amount every month/session/quarter/whatever for that purpose.   The usual limit is $600.  If you pay another individual less than $600 per year, it is likely not to be questioned as the majority of those cases end up being transactions like mentioned above (transfers between family and friends).  If you pay over $600 in a year, you definitely need to keep records in your personal files as that may come up in the future.[/quote]

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