The 1 Tax Form You Can't Afford to Miss (and must understand)

Episode Transcript

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In 2008 a housing law changedhow every digital dollar in your

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business would be tracked.
Today, that tracking systemprocesses over 68 million
transactions annually.
I'm going to show you howunderstanding this one tax form
will save you hours of time andthousands of dollars.
Form 1099-K wasn't created totrack barbers or other service
providers.
It was introduced under theHousing and Economic Recovery

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Act of 2008 originally targetingonline sellers and e commerce
but digital payments changedeverything.
While the form started with eBaysellers in mind the explosion of
payment apps and digitaltransactions transformed this
role.
This brings us to 2025 where itaffects every business that
accepts digital payments.

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The American Rescue Plan Actdrastically expanded this
tracking system.
Originally, you'd only get thisform if you had over 200
transactions, totaling$20,000.
Now, the IRS can tracktransactions as low as$5,000 for
tax year 2024 with that amountlowering in subsequent years.
The numbers tell a compellingstory in 2021, the IRS issued 68

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million Forms 1099-K a 43%increase in just one year.
So let me paint that picture in2020, there were 47.5 million
1099-K forms issued in less than12 months that number increased
to 68 million.
With 82% of small businesses nowaccepting digital payments this

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form has become a crucial partof the IRS's monitoring system
and here's a prime example ofthat monitoring in effect.
This tax court case Kahmann v.
Commissioner involves a businessowner who received two Forms
1099-K totaling over$151,000from their payment processors

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they made a critical mistake anddidn't include this full amount
when filing their tax return.
The IRS questioned them andguess what they did.
New phone, who dis?
They ignored the IRS letterafter letter.
Once they finally responded,they made another critical
mistake.
They decided not to tell the IRSabout all of their bank accounts

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and refused to provide bankstatements.
So, can you guess what the IRSdid?
Well, they didn't just walkaway.
Under IRS Code 6201(d), theyhave significant powers.
So the IRS issued summons tomultiple banks they conducted a
full deposit analysis and theyobtained merchant account
records.
After reviewing their records,they found over 134, 000 in

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credit card deposits, 24, 875 incash, and 375 from online
platforms, all undocumented.
The business tried claiming themoney came from a family cash
hoard their brother's businessand non taxable gifts.
But the court wasn't buying itbecause bank deposits are

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considered something called"prima facie" evidence of
income.
That means the money in youraccount is assumed to be income
unless you can prove otherwise.
Their second mistake was poorrecord keeping.
They maintained handwrittenlogs, but the court spotted
something crucial.
All of the entries appeared tobe written at the same time,

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with the same ink.
The court cited a critical legalstandard.
When you don't maintainaccurate, regular and
contemporaneous business recordsthe IRS gets something called
"great latitude" and they canreconstruct your income.
Simply stated you are guiltyunless proven innocent.
So what does this mean for yourbusiness?

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The IRS requires specificrecords to verify your 1099-K
income.

This includes (03:45):
payment app reports from every platform you
use credit card processingstatements bank account
statements and documentation offees and adjustments.
With multiple payment methodsbecoming the norm you need a
system now I don't have enoughtime to break down a full
system, but you can start withthese steps.

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Number one, I want you to keepyour business and personal
transactions completelyseparate.
The second one is track eachpayment platform individually.
The third one is save yourmonthly statements from every
processor.
While doing that, keep this inmind.
Clean records aren't just aboutavoiding IRS problems.
They're your ticket to buildingreal wealth.

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When your documentation issolid: Business loans become
easier to obtain.
Property acquisition getssmoother.
Investment and passive incomeopportunities open up.
Most importantly, proper systemsbuy back your most valuable
asset which is time.
So instead of scrambling duringtax season, you can focus on:

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growing your business exploringinvestments building multiple
income streams or simply justenjoying more time off the
digital payment landscape thatstarted with tracking online
sellers in 2008 has evolved intosomething that affects every
dollar moving through yourbusiness but understanding the

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system doesn't just keep youcompliant it creates
opportunities for building realwealth.
Remember, the most successfulbarbers aren't just great with
clippers.
They're smart with their money.
The choice is yours, but theclock is ticking.
Don't let the IRS give you ahaircut you can't style your way
out of.
It's your move, boss.