Shownotes
Do you use Paypal or Venmo for business?
Maybe you’re at a trade show or working with a contractor on a one-off project, so the easiest thing that comes to mind is to pull out your phone, scan the QR code and you have an easy way to give or receive payment.
But using Paypal or Venmo can create a few challenges when it comes to your bookkeeping, like not accurately reporting your income.
If you’re like Kristen, you might be thinking, “jail time!”
And although you won’t necessarily go to jail or get hit with a large fine, there can be implications and you do want to make sure you know how to best report this income.
Tune in to hear some of the common Venmo and Paypal mistakes you might be making and what you need to do to fix it so you don’t end up in trouble with the IRS.
- Understand why using PayPal and Venmo have their benefits
- Uncover the potential pitfalls that can turn your record-keeping into a mess, from undeposited funds to handling invoices
- Discover the 1 simple action you can take to never miss recording a Paypal or Venmo transaction
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Transcripts
It's when you're using those accounts as a bank.
Speaker:Mm hmm.
Speaker:That's when it gets sticky.
Speaker:So if someone pays you through Venmo, You want to deposit all that money into
Speaker:your business bank account right away.
Speaker:So that way you don't use some of it and then deposit some of
Speaker:it and you miss some of the sale and you miss some of the expense.
Speaker:Welcome to the Know Your Worth Show, where we teach you how to think about
Speaker:your money differently so that you can achieve your sexy money goals.
Speaker:I'm Sydney your money Maven and owner of Know Your Worth.
Speaker:And I'm Kristen Syd's Dimepiece bestie team member and busy mama
Speaker:twins here to make sure that those of us without a financial degree can
Speaker:still level up with each episode.
Speaker:Let's get started on reaching your next goal.
Speaker:Hello.
Speaker:Welcome to the Know Your Worth podcast.
Speaker:I am one of your hosts, Sydney, your money maven.
Speaker:I am Syd's dimepiece Bestie and executive assistant and friend and all the things.
Speaker:Doer of all the things.
Speaker:Doer of all the things.
Speaker:And we are in episode 24 of the Know Your Worth podcast.
Speaker:Thank you for listening along.
Speaker:Today we're going to talk about as a business owner, when you were using
Speaker:Venmo or PayPal for your business, some of the things to think about that could
Speaker:be red flags that you just want to make sure that you are being mindful of.
Speaker:Oh, awesome.
Speaker:I use both.
Speaker:Should you pick one or the other?
Speaker:No, you can use either one.
Speaker:And personally, I prefer to not not not use either one because there are
Speaker:a lot of benefits to using PayPal and Venmo for different situations.
Speaker:It's mostly that whenever you're using them, a lot of the times, PayPal is
Speaker:very much used so that you can protect your spending and your card information.
Speaker:If you're purchasing from.
Speaker:not the safest websites or the safest sources.
Speaker:PayPal can protect you so that you are not giving away your direct card information.
Speaker:It's like another barrier.
Speaker:Venmo can be the same way.
Speaker:So they're not bad choices per se, but the record keeping can get sticky.
Speaker:Okay, awesome.
Speaker:So maybe we should talk about some benefits and some downfalls that
Speaker:you see every day with your clients.
Speaker:Yeah, Biggest benefits for PayPal and Venmo are absolutely convenience.
Speaker:It is so easy to, Use Venmo.
Speaker:Everybody is really very attuned to Venmo now.
Speaker:Almost everybody has it on their phone, or a version of it,
Speaker:whether it's Zelle, Cash App.
Speaker:When I say Venmo, I'm really meaning any of those kind of like cash transfer apps.
Speaker:The convenience is the main thing.
Speaker:A lot of the clients that I see that use Venmo are the ones that are at craft
Speaker:shows, or they're at vendor fairs, or they're selling their retail product
Speaker:quickly, and they have a little sign up that says Venmo us, and you can just.
Speaker:scan the QR code and Venmo them right from there.
Speaker:The other way that I would see it is payments to contractors.
Speaker:So if they have some of the wedding vendors or the florists or any of them,
Speaker:if they have people that are just doing kind of one off deliveries for them,
Speaker:things like that, they're doing quick Venmo payments to pay their people.
Speaker:And again, if they're contractors, that's fine, but where the.
Speaker:Convenience can be a downfall is on the record keeping side.
Speaker:Now, both PayPal and Venmo link to QuickBooks, and I'm going to talk
Speaker:specifically with QuickBooks Online here, so if you're using another
Speaker:bookkeeping software, it might not be the exact same process, but for the
Speaker:most part, you can still connect them.
Speaker:The downfalls are the record keeping side.
Speaker:Like I said, you can connect them to QuickBooks, but you want to make sure
Speaker:that it is solely for business when you're connecting them to QuickBooks.
Speaker:If you are connecting your Venmo to your business QuickBooks and you
Speaker:have lots of personal transactions in and out, your friends paid you
Speaker:for the dinner you paid for them.
Speaker:Then you buy something with that Venmo money and it's a personal
Speaker:charge and all of that's being linked to your business account.
Speaker:It's a lot more data that you have to go through to make sure it stays clean.
Speaker:On the other side, if you don't connect it, And you get paid through Venmo and
Speaker:you have those funds in there and you don't transfer them right away to your
Speaker:business bank account and you use those funds for personal purchases or business
Speaker:purchases, you need to make sure that that gets recorded as a sale and then
Speaker:also as an expense or as an owner draw.
Speaker:And how many people just totally skip that step?
Speaker:Exactly.
Speaker:Exactly.
Speaker:On a record keeping side, Venmo is often not as clean as we'd like it to be.
Speaker:PayPal can be similar, but I do believe that most people Are cleaner with
Speaker:their PayPal than they are with Venmo at least from the experience of my
Speaker:clients, people that utilize PayPal for their business, they typically have
Speaker:a separate PayPal business account.
Speaker:That's what I was going to ask you.
Speaker:It feels like PayPal shows up in a tux and Venmo shows up.
Speaker:in like jeans, yeah, yeah.
Speaker:And like the jeans you're like, Oh, it's so comfy.
Speaker:That's where I want to be.
Speaker:Like, I'm going to use that one because it's so easy and quick and comfortable.
Speaker:PayPal's like also cute, but like Venmo is right here and I'm going to use that one.
Speaker:So what if you did all your personal stuff in Venmo and all of your
Speaker:business stuff in PayPal and it just linked your PayPal to QuickBooks?
Speaker:Absolutely.
Speaker:That's totally fine.
Speaker:And you might not use either one for your business and that's completely fine too.
Speaker:For our bookkeeping business, sometimes it'll make you a purchase
Speaker:from a PayPal account, but I don't keep funds in my PayPal account, so
Speaker:it pulls right from my bank account.
Speaker:So that's fine.
Speaker:If it does that, that's totally fine.
Speaker:It's when you're using those accounts as a bank.
Speaker:Mm hmm.
Speaker:That's when it gets sticky.
Speaker:So if someone pays you through Venmo, You want to deposit all that money into
Speaker:your business bank account right away.
Speaker:So that way you don't use some of it and then deposit some of
Speaker:it and you miss some of the sale and you miss some of the expense.
Speaker:It's so tempting to say I'm just going to leave this.
Speaker:Well, it feels like free money.
Speaker:Yeah, it feels like free money.
Speaker:Yeah, it feels free.
Speaker:And so it can be you can keep it that way.
Speaker:If it's only for business, then you can connect it like it's a bank account
Speaker:and you'll see all those transactions.
Speaker:Okay.
Speaker:Does that make sense?
Speaker:I feel like I'm talking a little bit quickly right now.
Speaker:No, it totally makes sense.
Speaker:So I'm wondering like you're doing end of the year wrap up
Speaker:for tons of businesses right now.
Speaker:So how many are you running into this a lot?
Speaker:Yeah, absolutely.
Speaker:And a lot of the time what we see is that we are then combing through
Speaker:Venmo accounts and we don't know what's personal and what's business.
Speaker:So then the clients that we're working with end up having to do a lot of their
Speaker:own bookkeeping at that point for those transactions because we have to say,
Speaker:okay, these are all the Venmo transactions that came up in your QuickBooks.
Speaker:Are they business or are they personal?
Speaker:Do you remember who you paid?
Speaker:And they're like, well, I don't know.
Speaker:And so then we'd say, okay, can you export your Venmo transaction list?
Speaker:It's not the best file to export probably because I think they want you
Speaker:to have a business account for Venmo.
Speaker:And then they do reporting.
Speaker:But if you have a personal Venmo account, the reporting is a lot.
Speaker:More limited.
Speaker:Oh, so you can get a business memo and a personal menu.
Speaker:Yep, but the business Venmo They charge you fees the personal Venmo.
Speaker:They don't so who would do that?
Speaker:Well, I guess PayPal does that too because you pick friends
Speaker:and family or exactly services.
Speaker:And if you are paying through your Venmo account for business and you pay someone
Speaker:more than 600 throughout the year.
Speaker:Venmo is also issuing that 1099 for you automatically.
Speaker:Oh, that's nice.
Speaker:Yeah, it is.
Speaker:What's with when you get an email that like you've been approved
Speaker:for a Venmo credit card or yeah.
Speaker:Yeah.
Speaker:What are those?
Speaker:So those aren't necessarily the worst options.
Speaker:Everybody's.
Speaker:Credit is different.
Speaker:Everybody's options are different.
Speaker:Whenever you get approved for things like that, it's because they see the
Speaker:money coming in and out of the account.
Speaker:So they're thinking, Oh, they're getting funds.
Speaker:They're not a terrible risk because they're receiving money.
Speaker:So they're willing to give you financing because they already
Speaker:see the cashflow coming in.
Speaker:So they think that you can afford through them.
Speaker:So they're willing to give you that credit card or they're
Speaker:willing to give you that loan.
Speaker:Apple pay is another one.
Speaker:They'll do Apple loans.
Speaker:And then there's also paypal will do loans too.
Speaker:And then quickbooks will give you loans too.
Speaker:I get a lot of emails now through the golf academy that we're a pre approved
Speaker:for a quickbooks loan Because they see the funds that are coming through
Speaker:They're willing to offer you financing.
Speaker:It's not the worst thing.
Speaker:Do you have people you have to sort through their apple pay?
Speaker:Yeah Really?
Speaker:What's that like?
Speaker:Is it convenient?
Speaker:It's not that bad because if it's connected to the card, it typically
Speaker:comes through the same way.
Speaker:It just is a pull on the card because their Apple Pay doesn't necessarily
Speaker:operate like a bank account.
Speaker:Yeah, gotcha.
Speaker:But if they have financing with them, then it operates more like a loan and
Speaker:we have to look at those transactions.
Speaker:But for the PayPal and the Venmo,
Speaker:basically what it boils down to is if you're using PayPal and
Speaker:Venmo like a bank account, Keep it separate like it's a business bank
Speaker:account, only use it for business, create another account for personal.
Speaker:If you have personal and business, if you're using it like
Speaker:a bank account, connect it to QuickBooks and make sure it's.
Speaker:Mostly business transactions, so it's clean for you to go through, or
Speaker:for your bookkeeper to go through.
Speaker:If you're not using it as a bank account, it still is nice to keep it clean,
Speaker:so you're not intermingling funds.
Speaker:But if that's the case, it's not so bad, because it's pulling directly from your
Speaker:bank account, or it's depositing directly into your bank account because you're
Speaker:transferring those funds right away.
Speaker:So that's kind of a documented exactly and it's just clean.
Speaker:One of our big red flags that we got from a client is that they
Speaker:do invoicing through QuickBooks.
Speaker:Their accounts receivable is in QuickBooks, but they accept payment
Speaker:through Venmo, but they don't have their Venmo connected because
Speaker:it's a personal Venmo account.
Speaker:So people will pay them, they'll allow customers to pay them through Venmo,
Speaker:but then they'll go into QuickBooks and they'll mark the whole invoice as paid.
Speaker:But then they don't deposit that money into their bank account.
Speaker:So then QuickBooks doesn't recognize that it's actually reconciled?
Speaker:Yes, because it's never come into their bank account.
Speaker:So it shows up as undeposited funds, which I know we've done a lovely
Speaker:episode on that, undeposited funds.
Speaker:So it increases their undeposited funds and it basically says,
Speaker:you're holding onto this money, we haven't seen it come into the bank.
Speaker:And it's, that's true.
Speaker:So what you would need to do is, if you use that money from your Venmo,
Speaker:You need to record that transaction and say the undeposited funds
Speaker:goes down and either own or draw.
Speaker:I took the money and I used it on personal stuff or I used
Speaker:the money on business expenses.
Speaker:Well, what did you use it on?
Speaker:Did you buy supplies?
Speaker:Did you?
Speaker:Repair something.
Speaker:Did you pay for advertising?
Speaker:So put that undeposited funds back down and then record the entry for
Speaker:what you did buy And that levels it right out and that's fine.
Speaker:That happens a lot Yeah, but you need to make sure you record that or else
Speaker:the undeposited funds goes up and it's like where is all this money?
Speaker:Where is all their money though?
Speaker:It depends on what they used it for this client that we have They were paid through
Speaker:Venmo and they took the money and they put it in their personal bank account.
Speaker:So their undeposited funds went up.
Speaker:Their accounts receivable was cleared.
Speaker:It looked like their client paid them.
Speaker:But then we never saw that cash deposited into the bank because they just
Speaker:deposited into their personal account almost like a paycheck for themselves.
Speaker:Is that allowed?
Speaker:Mm hmm.
Speaker:But we just need to record it then and say yes that sales happened.
Speaker:We're going to remove the funds and then it was an owner draw
Speaker:and it was an owner draw home.
Speaker:And I feel like I just, I know you did it.
Speaker:Debits and credits.
Speaker:It's just, you got it.
Speaker:25 episodes, 24 episodes.
Speaker:And here I am.
Speaker:Kristen's going to be hired as a full time bookkeeper in the next month.
Speaker:I'm ready.
Speaker:I got my degree, my podcast.
Speaker:Yeah.
Speaker:Yeah.
Speaker:So those are the primary.
Speaker:Pieces that we like to explain to our clients when they use PayPal or
Speaker:Venmo is there are big positives, but there are also just things to
Speaker:be aware of so that you don't make it stickier than it needs to be.
Speaker:Gotcha.
Speaker:It's like having a business and personal card like one step up above that.
Speaker:Yes.
Speaker:Yeah.
Speaker:Yeah.
Speaker:In terms of what you have to do to keep it straight.
Speaker:Exactly.
Speaker:And a lot of people.
Speaker:Utilize Venmo and they think that they don't need to report that
Speaker:income because it's like separate or secret or like it's under the table.
Speaker:Yeah.
Speaker:It's like under the table money, but it's not it's not, it shouldn't be.
Speaker:Mm-Hmm.
Speaker:. Sometimes it is.
Speaker:And I understand that.
Speaker:I know how businesses operate.
Speaker:I'm not the IRS, so I'm not going to.
Speaker:your hand if you're doing it.
Speaker:But I will say what you just want to make sure is that your records are clean.
Speaker:For example, if you're a hairdresser, this happens with hairdressers and I
Speaker:think nail salons all the time, and it's one of the reasons why Venmo.
Speaker:has implemented some of these business policies because they want to track
Speaker:how much money you're receiving.
Speaker:They want you to use the business account.
Speaker:And that's why your hairstylists and your nail salons, they
Speaker:say, don't put a memo in there.
Speaker:Just put an emoji.
Speaker:Don't say it's tips or don't say it's thanks for the service,
Speaker:because Venmo is looking for those.
Speaker:They don't want to have to pay taxes on them.
Speaker:I understand that that's what happens sometimes.
Speaker:I'm not blind.
Speaker:I'm not, the stickler for it.
Speaker:I get it.
Speaker:It is what it is.
Speaker:And that's fine.
Speaker:You do you, but know the implications of it.
Speaker:You are the one that's liable in the end if you're not
Speaker:reporting all of your income.
Speaker:You just need to make sure your books are accurate.
Speaker:So if you're somebody that has invoices and you're collecting through Venmo
Speaker:and you're marking those invoices as paid, but you're not depositing the
Speaker:money in, your books are incorrect.
Speaker:You need to make sure that you're categorizing that as then an owner draw.
Speaker:And you are recording the transaction appropriately.
Speaker:And again, if you're pocketing some of that money, that's on you.
Speaker:You just need to know what the implications are.
Speaker:Should anything ever come up and what you would need to do to remedy the situation
Speaker:so that you know what you're doing, it's always better to be informed and
Speaker:to know the risks associated with it.
Speaker:That if you're not reporting all of your income, you're Jail time.
Speaker:Yeah.
Speaker:Bars.
Speaker:That's it.
Speaker:That's not true.
Speaker:Hope you look great in orange.
Speaker:Not necessarily true.
Speaker:Just joking.
Speaker:Fines on fines.
Speaker:I'm just kidding.
Speaker:Not that either.
Speaker:Not necessarily.
Speaker:But it's just something you want to make sure you are opening the
Speaker:door for negative implications for yourself and for your business.
Speaker:So you just want to make sure that you are well versed in what you need
Speaker:to do and how to keep that clean.
Speaker:Makes sense.
Speaker:Yeah.
Speaker:And a lot of businesses don't use PayPal or Venmo at all and that's fine.
Speaker:There's no problem with that.
Speaker:You're not missing anything.
Speaker:It's just a tool.
Speaker:Again I use PayPal if I'm buying something that I don't trust the website
Speaker:or the source where it's coming from.
Speaker:It's a nice intermediary than giving somebody your account
Speaker:and routing information to deposit, if you're not sure.
Speaker:You know when I use PayPal.
Speaker:When?
Speaker:When I'm cuddled up on the couch and I'm online shopping and there's
Speaker:no way I'm going to walk over to my wallet and get my card.
Speaker:Yes.
Speaker:There's just no way.
Speaker:It's the best.
Speaker:I agree.
Speaker:I agree.
Speaker:If that option is there, then you get my sale.
Speaker:If that option is not there, you do not get my sale.
Speaker:Yep.
Speaker:I am lazy.
Speaker:my Know Your Worth debit card has been in a different wallet
Speaker:for the past month and a half.
Speaker:This is some of my ADHD coming out right here.
Speaker:I will admit this.
Speaker:I went to an event.
Speaker:But I had my Know Your Worth card and I packed a different wallet with my
Speaker:ID and my Know Your Worth debit card.
Speaker:And it is still in that separate wallet in a different room in my house.
Speaker:And I haven't used it.
Speaker:I haven't swiped that card in a month and a half.
Speaker:Maybe that's the secret to saving money.
Speaker:But then there's PayPal.
Speaker:Ah, PayPal!
Speaker:And Apple Wallet is amazing.
Speaker:So whenever I've gone out to a client meeting and I go to reach and I'm like,
Speaker:Oh my gosh, I don't have this card.
Speaker:Do you accept Apple pay?
Speaker:Yes.
Speaker:Wonderful.
Speaker:Double click.
Speaker:Yeah they're great tools for that.
Speaker:And PayPal, it's great.
Speaker:Again, there's, you can check out a lot of the times online with those.
Speaker:It definitely saves me a lot.
Speaker:Especially this past month and a half, the guard somewhere else.
Speaker:I'm going to try that trick.
Speaker:We all have uh, yeah, yeah.
Speaker:And mine is, well, this is one of mine.
Speaker:Perfect.
Speaker:Mark that down guys.
Speaker:But.
Speaker:Don't say we never gave you any tips.
Speaker:The bookkeeping is all correct.
Speaker:There you go.
Speaker:All right.
Speaker:Well, that was awesome.
Speaker:That was a quick and dirty episode.
Speaker:Yeah.
Speaker:That was great tips.
Speaker:Absolutely.
Speaker:Stuff to be aware of.
Speaker:Exactly.
Speaker:If you have any further questions on your PayPal or Venmo or how to make sure
Speaker:that they're categorized appropriately or you know you've gotten yourself
Speaker:in a bit of a pickle by not keeping things organized give us a shout out.
Speaker:We can help you out.
Speaker:And Clean everything up.
Speaker:Perfect.
Speaker:All right.
Speaker:And on the next episode, we're going to talk about reconciling those accounts.
Speaker:And if you have them connected to QuickBooks, you should be reconciling
Speaker:your PayPal accounts as well.
Speaker:And Venmo if you're using it like that.
Speaker:So check out next week.
Speaker:Stay tuned.
Speaker:Bye guys.
