I also sent my friend the money back so it looks like a return/refund, since Venmo can not reverse the transaction. I have no history of goods/services transactions. This is the first one. When I get this 1099-K should I ignore it or file it? If I do file it, how do I deal with something like this?
Well you cannot ignore it but the IRS has not given directions on how to handle these kinds of situations ... hopefully by the end of the year there will be some instructions posted. Worse comes to worse you can enter the income on a Sch C and expense the same amount so it negates it automatically.
I’m pretty sure you’d have to surpass $600 of these types of transactions to get a form sent to you. I’m by no means a tax expert, but I have been looking into Venmo’s new policy extensively: https://help.venmo.com/hc/en-us/articles/[phone number removed]9-2022-Tax-FAQ#:~:text=Anyone%20who%20receives%20at%20least,be%20subject%20to%20income%20tax.
Here is what the IRS FAQ states:
If you cannot get the form corrected, the error should be reported on Form 1040, Schedule 1, Additional Income and Adjustments to Income PDF, Part I, Additional Income, Line 8z, Other Income, with an offsetting entry in Part II, Adjustments to Income, Line 24z, Other Adjustments.
For example, you took a trip with your friend and you paid for the airline tickets. If your friend reimburses you $2,500 for their airline tickets, and you received a Form 1099-K reporting the $2,500 as gross proceeds, your Schedule 1 should reflect the following:
Form 1040, Schedule 1, Additional Income and Adjustments to Income
Part I – Line 8z, Other income. List type and amount: “Form 1099-K Received in Error …. $2,500” to show the proceeds reported on the Form 1099-K.
and
Part II – Line 24z, Other adjustments. List type and amount: “Form 1099-K Received in Error…. $2,500” to offset the proceeds reported to you in error.