Having a Paypal, Venmo business accounts ensures you are tax compliant with your business. Co-mingling is the first red flag if you ever get audited. This write up from Turbo tax explains the requirements for using 3rd party P2P. Bank/CC statements are not a form of supporting document for business expenses. You must have receipts , invoices to create audit proof books.
https://turbotax.intuit.com/tax-tips/self-employment-taxes/p...
For IRS purposes, using a P2P payment platform is similar to paying cash, which the IRS considers to be an unsubstantiated transaction. Business owners need to have additional documentation — such as invoices, receipts, or expense reports — to support the business purpose of payments made through a P2P platform.
For example, a business might pay its janitorial crew through Venmo for legitimate office cleaning expenses. But for IRS purposes, a Venmo time-stamped transaction alone does not supply sufficient information to substantiate a business expense.
- If you pay business expenses with Venmo, PayPal, or another P2P platform, make sure you have an invoice from your contractor or get a receipt from the vendor.
- This documentation should include the amount paid and a description of the business expense.
- This will ensure that you have the right backup information for your deductions if the IRS ever questions the legitimacy of your expense.
Keep in mind, as a business-owner, any payments made to you through a P2P app are still subject to IRS Form 1099 reporting rules and will need to be properly accounted for. From the IRS's perspective, business income collected through a P2P app is no different from any other transaction that goes through a traditional bank account. Businesses are still required to report any payments received through Venmo and PayPal as taxable income when filing taxes
