Business payments on Venmo marked as "personal" - can I still write these off for tax purposes?

Quick tax question here - I started a small woodworking business last year and had some decent income for the first time. I've been using Venmo for a lot of transactions, but I've been marking them as "friends" to avoid fees (yeah, I know it's against their terms). Example: I paid my cousin $275 to help design my business cards and website, but marked it as a personal transaction. Can I still legitimately claim this as a business expense deduction on my Schedule C? Does the IRS care how I categorized it in Venmo? Also, what about reimbursements? If my brother picks up $180 worth of specialized wood for me at a supplier and I Venmo him back, can I write off that Venmo transaction? Or do I need to get the actual receipt from the supplier? This might be a dumb question but I'm totally new to self-employment taxes and trying to figure out what documentation I need for all my business expenses. Any advice appreciated!

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21 comments

Nasira Ibanez

•8M

The IRS is concerned with the reality of the transaction, not how Venmo categorized it. What matters is whether the expense was ordinary and necessary for your business, not whether you labeled it "friends and family" or "goods and services" on the payment platform. For your cousin's design work, absolutely you can deduct it as a business expense, provided it was legitimately for your business. Keep records showing what the payment was for - maybe save emails discussing the project, have a simple invoice from your cousin, or even just document it yourself with details of what was purchased and why it was business-related. For reimbursements, ideally you want the original receipt from the supplier. The Venmo transaction shows you paid your brother, but doesn't prove what the money was for. Having the supplier receipt provides proof of what was actually purchased. Think of it this way: the receipt shows the business expense, while the Venmo transaction just shows the method of payment.

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Nasira Ibanez

•8M

Yes, this applies to all payment apps including PayPal, Cash App, Zelle, etc. The IRS is concerned with the substance of the transaction, not which button you clicked in the app. As long as you can demonstrate the payment was for a legitimate business expense, you can deduct it. Just make sure you're keeping good records. Since you don't get an automatic receipt showing what was purchased when using the "friends" option, you need to create your own documentation. This could be emails confirming what was purchased, a simple invoice from the vendor, or even just your own written record with details of what the expense was for and why it was business-related.

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Myles Regis

•8M

After struggling with similar Venmo record-keeping issues for my freelance photography, I found this amazing AI tool that saved me so much headache during tax season. It's called taxr.ai (https://taxr.ai) and it analyzes all your payment transactions and helps categorize them properly for tax purposes. You can upload screenshots of your Venmo payments and it will help document them as business expenses with proper notes about what each was for. It even helps you understand what documentation you need to keep for each type of expense.

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Myles Regis

•8M

It doesn't connect directly to Venmo - you'll need to export your transaction history as a CSV or take screenshots of your transactions. But once you upload those, it processes them super quickly, so even 200+ transactions shouldn't be a problem. The AI doesn't automatically know which transactions are business vs personal - you'll need to provide some initial guidance. But it learns from your patterns and starts making suggestions. For example, if you mark payments to certain people as business-related, it will recognize those patterns. For mixed contacts like your example, you can add notes to each transaction explaining which are business and which are personal, and the system helps you maintain that documentation for tax time.

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Jacinda Yu

•8M

Just wanted to follow up - I tried taxr.ai last week after seeing this thread and wow, it actually works really well! I was skeptical at first but it helped me sort through my entire year of messy Venmo transactions in about an hour. The best part was it helped me identify about $1400 in deductions I would have missed because I had completely forgotten about some business expenses I paid through Venmo. It also gives you guidance on what additional documentation you should keep for each type of expense, which was super helpful for a tax newbie like me.

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Landon Flounder

•8M

If you're really concerned about documentation, I'd recommend calling the IRS directly to get an official answer about Venmo transactions. I spent weeks trying to get through to someone at the IRS about a similar issue with Cash App payments, but finally used Claimyr (https://claimyr.com) and got connected to an agent in under 10 minutes. They have this system that navigates the IRS phone tree for you and calls you back when an agent is actually on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c

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Landon Flounder

•8M

There is a fee for the service, but they don't charge you if they can't get you connected to an agent. I can't remember the exact amount but it was worth it to me to not spend hours on hold. I was skeptical too! I had previously spent over 4 hours on multiple calls trying to get through about my Cash App business transaction questions. With Claimyr, I literally got a call back in about 7 minutes and was talking to a real IRS agent. The agent confirmed that they don't care about how the payment app categorized the transaction - they care about the reality of whether it was a legitimate business expense.

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Ally Tailer

•8M

I need to apologize for my skepticism. I tried Claimyr yesterday out of desperation because I've been trying to reach the IRS for 3 months about my amended return. I got a call back in 12 minutes with an actual IRS agent on the line! They answered all my questions including confirming that Venmo transactions marked as "friends" are perfectly fine for business expense documentation as long as you can prove what the expense was for. Saved me hours of frustration and I got an official answer directly from the IRS.

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Aliyah Debovski

•8M

I keep it pretty simple - date, amount, recipient, brief description of what it was for (like "wood supplies - cabinet project" or "design services - website"), and which project/client it relates to if applicable. I also take a minute to add a note in the Venmo transaction itself when sending money, even if it's marked as "friends." Something like "For business cards design" or "Website work" - that way there's at least some documentation directly in the app. During my audit, the IRS was actually pretty reasonable about documentation. They just wanted to see that I had some system for tracking expenses and that the deductions were legitimate business expenses.

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Alberto Souchard

•5M

You're not necessarily "in trouble" but you should issue a 1099-NEC for 2024 since you paid over $600. The deadline for sending it to your friend is January 31st, and you need to file it with the IRS by the same date. You can still do this even though the payments were through Venmo - the payment method doesn't matter for 1099 requirements. Your friend will need to report that income on their tax return regardless of whether they get a 1099, but issuing one protects you and ensures proper reporting. You can get the forms from the IRS website or use tax software that handles 1099s.

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Camila Castillo

•4M

Just to add another perspective - I've been doing freelance graphic design for 3 years and use Venmo for probably 60% of my business transactions, all marked as "personal" to avoid fees. Never had an issue with the IRS. What matters is that you can substantiate the expense was legitimate and business-related. For your woodworking business, I'd recommend creating a simple system now before tax season gets crazy. I use a basic Google Sheet with columns for: Date, Amount, Recipient, Business Purpose, and Project/Client. Takes 30 seconds per transaction but saves hours during tax prep. One tip that's helped me - when I send Venmo payments for business stuff, I still put a brief note in the transaction even though it's marked "personal." Something like "lumber order" or "logo design." That way if anyone (including myself months later) looks at the transaction, there's at least some indication of what it was for right in the app. Your cousin's design work and your brother's wood pickup are absolutely deductible regardless of how Venmo categorized them. Just keep some record of what each payment was for and you're golden.

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