FINANCIAL FOCUS

Mythbusting the Venmo Tax

by Michael McCormick, CPA

Years ago there were few ways for the IRS to track the movement of money. The IRS relied on employers issuing W-2s to employees and sending a copy to the IRS. Now that the IRS has computers they compare all of the W-2s received for an SSN to the personal tax return filed for that SSN. Pretty straightforward big-brother tactic, except not all workers are employees. To attempt to reduce the tax gap the Service wanted a way to quantify the amount paid to those working outside the traditional employment arrangement. Specifically, sub-contractors. So, they did what bureaucrats do. They created a form for that and birthed Form 1099-MISC in the 1980’s which is another big-brother tactic to coerce parties to report activity to the IRS. It is a multi-purpose document used to report various types of payments. Subcontractors, Attorneys, Rent, etc. The 1099-MISC was to be issued by a business to unincorporated entities (people) who provided sergreater than $600. Square, PayPal, Venmo, etc. and that’s where the myths begin. The myth that is circulating is that the amount reported on a 1099-NEC is taxable. That simply isn’t the complete story. The 1099-NEC only represents revenue. Since the majority of Americans receive W-2 income, they’re not accustomed to what a 1099-NEC represents. This lack of understanding has created some very strong comments on social media and has probably stopped more than a few people from using cash apps. While the amount that is reported on a 1099 could be significant, income tax is not paid on the amount of revenue, sales, or gross-receipts received. The Internal Revenue Code requires the IRS to extract the tax from profit (the financial gain). That is, revenue (sales) less expenses or basis (investment). For example, you sell a bicycle for $700 and collect through a payment app. The cash app will send you

The myth that is circulating is that the amount reported on a 1099-NEC is taxable.

vices and were paid $600 or more in a calendar year. And, of course the payer sends a copy to the IRS. That way the person being paid will be inclined to report the full amount of their revenue on their tax return. If they don’t, the IRS will send them a gentle reminder that they missed something. Keep in mind the 1099-MISC for the recipient only includes revenue or sales. It is key to understand that a 1099 does not reflect the amount of profit the recipient earned during the year or even profit earned from the issuer of the 1099-MISC. With that background we jump forward to 2022 and the IRS has birthed yet another form called the 1099-NEC (non-employee compensation) as a partial replacement for the 1099-MISC. The MISC is still alive and kicking but has less work to do since payments to contractors are no longer reported on the MISC. In addition to a brand spanking new form, the IRS now requires your favorite digital money transfer services to report all transactions and the IRS a 1099-NEC reflecting the $700 sales price. When preparing your tax return for the year of the sale you will report the $700 sales revenue and subtract what the bicycle cost you. The IRS has no way of determining what you paid for it. (It is your responsibility to be able to support your cost/basis.) It is interesting to note that transactions processed as “Friends and Family” are not required to have a 1099-NEC issued by the third-party digital payment vendor. However, if the IRS later determines that a 1099 should have been issued the burden shifts from the digital transaction facilitator, to the payer.

Myth busted.

Michael McCormick is the Principle of Financial Clarity Group, Inc. an Ohio CPA and Investment Advisor Representative, with over 20 years experience. A graduate of the University of Cincinnati’s College of Business Administration and a 1988 graduate of Lima Central Catholic. He can be reached at 513-488-1121 or mike@financialclaritygroup.com and www.financialclaritygroup.com

Tara on the Town

Oh, What a Night!

by Tara Reynolds Bales

On June 9, 2022, I attended Mercy Health Foundation’s Third Annual Red Door Gala at the Veterans Memorial Civic and Convention Center. To quote Franki Valli & The Four Seasons, “Oh What A Night!” From the moment I walked into the venue, I was in Hollywood! Hundreds of guests wearing stunning attire while walking down the red carpet was a wonderful sight. The food was delectable and beyond words. The atmosphere was exciting, and the room was filled with positive energy.

Mercy Health presented me and 350 of my closest friends with over-the-top, to-die-for culinary creations by David Lani and team. David’s artistic flair exploded with candied bacon trees, mini duck confit wonton pizzas, tempura crispy honey pecan chicken, and many other delectable delights. My favorite was David’s take on street tacos. The ahi poke street tacos with spicy mayo and roasted pineapple salsa were the hors d’oeuvres I didn’t know I needed in my life! As much as I loved his street tacos, nothing could be outdone by Chef David’s volcano ice sculpture raw bar. Jumbo shrimp cocktail, greenlipped mussels with tomato bruschetta, and raw oysters with strawberry mignonette decorated the sculpture. It was an artful display of culinary gratification. Well done, David and team!

The culinary delights continued with succulent sweets by Chef Alisa McPheron. Chef Alisa pulled out all the stops with her boozy chocolates. They were full of flavor and simply melted in my mouth. Chef Alisa continued to please the chocolate lovers in the room with luscious, sweet, and rich chocolate mousse topped with creamy whipped cream. Every spoonful was heaven. Better yet, the macaroons were airy bits of celestial heaven, as gorgeous as delicious.

Drew & Maria Sanko Gena & Dino Guagenti Ann Trueblood Stiles Jim & Anne Gideon Morgan Gideon & Deana Carter

The Red Door Gala was the place to be and to be seen. Who knew so many fashionistas were in Lima, Ohio? I don’t have enough space to describe all the fabulous people at the gala, but…Polka dots are back, and Kyle Walter brought dots to the gala with style. Kyle wore a black-and-white polka-dot jacket with a pin-striped pocket square. His daring red pants were worth the risk. Maeggan Walter added red flare with open-toed, anklestrapped sandals. The Walters brought fun, daring, and head-turning fashion to the gala.

Keeping with the red theme of the night, Maria Sanko and Gena Guagenti wore flattering red dresses while their husbands, Drew Sanko and Dino Guagenti, added a pop of red with their ties. What a great looking foursome! Dave Frost, Foundation Board Member, admired his wife, Kelly’s shiny red satin dress. Dr. Anne Gideon, retired Mercy Health physician, with her always life-ofthe-party husband, Jim, exuded elegance in her offshoulder red dress. Posing with performer, Deana Carter, Morgan Frost Gideon defined the night with her chic knee-length red dress with ruffled sleeves.

Black exudes formality even at a Red Door Gala. Sara Ambroza, Mercy Health Foundation President, turned heads with a Frank Lyman dress from Jean and Lily’s

Sara Ambroza, Karen Grothouse, Ronda Lehman Dave & Kelly Frost

Fashion Boutique in downtown Lima. She popped color with red heels and trendy earrings. Abe Ambroza, CEO of the Veterans Memorial Civic and Convention Center, sported a dapper black tuxedo and bow tie. Ann Trueblood Stiles, Mercy Health’s Community Affairs Coordinator, took her look to the next level with her red to black ombre nails and heels. Wearing a stunning all-black Aladdin-style outfit with a flirty slit, Ronda Lehman, Mercy Health Marketing President, looked marvelous as she mingled with other guests. She might not have been wearing all black, but Karen Grothouse, CEO at Spherion Lima, was simply elegant in her gray and black dress from her mother’s collection, as she made the rounds at the gala.

Watching Deana Carter perform Strawberry Wine was the perfect end to an amazing night. I had the pleasure to attend this fashionable event which raised well over $270,000 to support neuroscience, stroke care and in-patient rehabilitation services. If you want to support Mercy Health Foundation, enjoy culinary delights, mingle with amazing, fashionable people, and want to be seen, plan to attend the 4th Annual Red Door Gala on June 8, 2023. I will see you there. - Tara on the Town

Images courtesy of TheAyers.com and Heather Marie Photography.

Dave & Sara Ambroza Maeggan & Kyle Walter