Venmo, PayPal, and similar apps have exploded in popularity over the years. Why? They offer a fast and simple way to pay and get paid.

Venmo started out as a unique transaction-based twist on social networking. These days it's used more and more by small business. And it makes sense. Many independent contractors and business owners find it challenging to get paid. With P2P (Peer to Peer / Platform to Platform) apps like Venmo and PayPal, it's as simple as scanning a QR code.

By 2023, it's predicted there will be over $1 trillion in mobile payment app transactions. It's safe to assume a sizable chunk of that will be business related transactions.

Are P2P Apps as Simple as They Seem?

It's not always a good idea to use "shortcuts" to simplify matters as heavy as income tax. While P2P apps are perfect for paying a friend back for pizza, they lack features for organized business accounting.

If you're paid for a product, sales tax is not calculated or charged. You're not getting information needed to send or receive 1099 forms. And the data associated with a transaction is extremely minimal.

If you're mixing personal and business transactions on the same account, yikes. You're in for a headache. Have fun sorting through the mix of uncategorized dollar amounts and emojis. Was that 🌹 for date night or the floral arrangement for the lobby?

To make things even more complicated: the government will soon be stepping it up in regulating P2P services.

New Tax Regulations for P2P Apps

Unfortunately it's not Venmo's responsibility to make sure you're using their app correctly for income tax. It's up to you to figure out how it effects your business earnings. And we're doing you a favor letting you know that you need to report income from mobile cash apps. Just the same as cash or checks with a traditional invoice.

Here are the changes:

By January 31, 2022 third-party payment platforms must send 1099-K forms to the businesses that fit the following criteria:

• $600 in gross sales in a calendar year, regardless of the number of transactions, in Massachusetts, Maryland, Vermont and Virginia

• $1,000 in gross sales with three or more transactions in the state of Illinois

• $20,000 in gross sales and 200+ transactions in all other states

If you don't fit this criteria and think this means you're off the hook, think again.

Starting January 1, 2022 anyone earning an annual total income of $600+, regardless of state or number of transactions, will receive an IRS 1099-K form in January 2023 to report third-party platform-facilitated earnings.

Think of this as your opportunity and fair warning to get organized with payments on P2P apps. You might even want to think about keeping business transactions off of these casual (and sometimes unsafe) platforms.

The best way to keep your books clean and avoid year-end headaches? Work with an accountant you trust like Pioneer Accounting Group. We're trained to answer all your questions on tax reporting and bookkeeping.