2

I run a TNT Fireworks tent one week every summer and use Square to process my credit card transactions. I've had no issues with that setup until this year when I received a notice from the IRS concerning my 2013 tax return.

The notice the IRS sent me was basically claiming the credit card transactions I had swiped for 2012 was all income for me. That's definitely not the case as about 80% of that money actually goes to TNT directly to pay them for the fireworks themselves.

I'm guessing all I need to do is supply the IRS with the invoice and my payments for that invoice to TNT to prove that's the case, but should I hire an accountant for this? Additionally has anyone been in a similar situation with the IRS that uses Square that has any advice?

  • 1
    You should probably be filing Schedule C (business income). You would then be able to deduct payments to TNT, and any other expenses, and treat the remainder as income. – jamesqf Apr 7 '15 at 3:17
  • Not really a duplicate, but you might also want to look at this: money.stackexchange.com/questions/39295/… – Vicky Apr 7 '15 at 10:16
  • Thanks James! I'm not sure I'll be able to find my receipts for expenses for that year, but I'll keep that in mind for the future. And thanks for the link to that other post Vicky! – Brian Apr 8 '15 at 12:37
4

Square is a company. They need to detail as part of their corporate taxes all of their expenses. The money they collected for you, and sent to you, is not income for themselves. Their tax form included the amount of money they sent you, along with either your Social Security Number of corporate tax id.

The IRS computers match the information regarding expenses to the information regarding income. In this case the expense listed by Square didn't match-up with a line of your tax forms for that year.

The IRS now sees that as unreported income. If you didn't tell them about other expenses you had, they can only assume your expenses were zero.

Congratulations you have a business. Unfortunately the Federal, state and local governments now will want to know about your business. You may have to fill out multiple years worth of tax forms and other required forms.

Yes, you should getting professional accounting and tax help.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.